Rbi Props 10-Year Yield To Over 8%

The yield of the benchmark 10-year paper moved up to cross the eight per cent mark today and closed at 8.17 per cent as the Reserve Bank of India (RBI) intervened in the bond market and sucked out liquidity.

The 10-year paper yield had slipped below eight per cent on November 29. With today's 27 basis point rise, the yield on the paper has witnessed a 40 basis point rise during this week. At the medium and long end, yields of government papers increased by 20-30 basis points.

Money market dealers are expecting the 10-year paper yield to touch 8.25 per cent by Monday and 8.50 per cent by the end of the month as the liquidity situation will remain tight.

 

In addition to the Rs 6,000 crore worth government borrowings on Tuesday, the apex bank has mopped up Rs 14,500 crore through open market auctions in the last one week including today's auction of Rs 8,000 crore. This has caused a liquidity strain in the market and prompted market participants to sell off their holdings in government securities.

The reversal of sentiment in the government security market was transmitted to the corporate bond market as well. The yield on the 5-year non-convertible debentures, which has an AAA rating, went up by 15 basis points to 8.20 per cent. Call rates were also slightly higher in the 6.60- 6.90 per cent band.

A treasury head at a private sector bank said: "In addition to outflows through open market auctions, there will be advance tax outflows during the month. So we are expecting the liquidity to remain strained."

Yields of government papers had been falling continuously since the credit policy announced on October 22. The 10-year paper yield dropped from 9.15 per cent on October 22 to 7.76 per cent at the end of last week.

The yield has been going up since the beginning of the current week due to worsening of the liquidity scenario. During the week, the 10-year paper yield increased by 40 basis points.