10-yr yield may drop to 7.75% this week

The yield on the 10-year government paper (8.07% 2017) dropped by nine basis points to 7.90% in early trades today as against the closing level of 7.99% on Friday with banks looking for securities to park excess liquidity.

"There is a slowdown in credit offtake. Also, with call market rates ruling below 3%, lending in overnight inter-bank market is not an attractive business," a dealer with a public sector bank said.

The demand for government paper has grown substantially, and the 10-year yield may approach 7.75%, the rate at which RBI lends to banks under the repo rate window, he added.