G-Sec yield softens on RBI pause signal

The yield on government bonds dipped in early trades as the Reserve Bank of India (RBI) signalled pause on interest rates in the near term.

However, there was reversal of gains on profit booking by players and paring of positions ahead of the bond auction on Friday.

Dealers said rate hike was anticipated. The rates have peaked and RBI’s clear statement on pause has taken off some pressure on yield. Though, the government borrowing and inflation could weigh on the market mood.

The yield on benchmark 10-year security (7.80 per cent 2021) closed at 8.76 per cent, as against 8.82 per cent on Monday. Prior to policy announcement, yield was ruling around 8.79 per cent. Later it moved down to day’s low of 8.67 per cent.

 

The yields on other actively traded securities 8.08 per cent 2022 and 8.13 per cent 2022 closed at 8.79 per cent and 8.81 per cent, respectively.

Besides, rate signal steps to improve liquidity in bonds markets also had impact on yield trend, said the head of treasury with a large public sector bank.

RBI said it will issue guidelines on short sale in government securities by December-end, 2011 and also to set up a group to suggest ways for enhancing secondary market liquidity in the G-Sec and the interest rate derivatives markets.

In corporate bond market yield fell sharply as some buying emerged after the central bank signalled that it may end its tightening cycle.

Five-year yield dropped six basis points to 9.67 per cent and the yield on the 10-year corporate bonds was lower seven basis points at 9.67 per cent.