10-Year Paper Yield Falls To A New Low Of 9.5 Per Cent

The yield of 10-year government paper fell by 7 basis points today to its historic low of 9.50 per cent even as the Reserve Bank of India (RBI) announced twin auctions of Rs 6,000 crore to be held on Friday. The dip in yield is significant as the US Federal Open Market Committee (FOMC) is meeting tomorrow to take stock of the interest rate scenario.

Even though the central bank is unlikely to announce a bank rate cut in the near future, the yields of government papers have been falling continuously. The 10-year paper yield fell by 10 basis points in the last two days on the back of ample liquidity in the system and is likely to fall further.

 

The market expects the yield to dip by at least another 10 basis points by the week-end. By end-July, the 10-year yield may settle at around 9.25 per cent.

The main source of the liquidity in the current fiscal has been the huge deposit mobilisation by commercial banks.

Aggregate deposit of the banking industry went up by Rs 45,024 crore in the first two months of the financial year against Rs 28,193 crore during the corresponding period of the last fiscal. Non-food credit actually registered a negative growth of Rs 2,129 crore in the first two months.

Besides higher deposit mop-up, huge inflows due to redemption of gilts has been the other source of the liquidity. The market has already received more than Rs 10,000 crore of inflow from redemption of government securities and is likely to receive another Rs 20,000 crore in July.