10-year yield falls to 5.08%, MSS no liquidity curb

The yield on the ten-year benchmark gilt dropped to 5.08 per cent today owing to the overabundance of liquidity in the banking system.

The Rs 12,000 crore market stabilisation bonds issued through four auctions so far by the Reserve Bank of India (RBI) does not seem to have succeeded in curbing the level of funds.

Two weeks back, the benchmark yield was hovering around 5.16 per cent. Going by the liquidity trend, it could touch or pierce past the psychological 5 per cent mark soon.

As on April 12, repo outstandings with the RBI set to revert to the financial system is pegged around Rs 72,000 crore. This includes all the seven-day repo subscriptions since April 6. On the other hand, net inflows from foreign institutional investors (FIIs) have been moderate at Rs 5,520 crore.

Bond dealers added that the FIIs are not only the source for inflows as exporters are rushing to book receivables at every possible support offered by the RBI for the spot rupee.

A banker said basically, with or without forex inflows, the story of liquidity seems to be continuing and this is the primary reason for the buying spree in the bonds market.

Experts said the market stabilisation scheme has only just started and it will take some time before its effect can be assessed. Dealers feel they have a reason to be happy.

While government borrowings have been on the lower side in the annual calendar, the ways & means account has been in surplus since a long time "" the Centre has not drawn from it since the past 8 months.

Moreover, rupee securities in the account of RBI has turned negative at Rs 4,793 crore, and in effect, the central bank will have to issue fresh securities to carry open market operations.

The central banks will also need securities to place as collateral for conducting repo. Marketmen said the overabundance of liquidity will remain till the RBI carries out massive open market operations.

Interestingly, subscriptions to the seven-day repo, which have been coming down gradually last week, shot up to around Rs 30,000 crore today.