 "Bonds, Govt bond")
Government bonds reversed gains on Thursday as the Monetary Policy Committee (MPC) outcome was not as dovish as the market had expected, participants said.
The yield on the benchmark bond fell up to 7.04 per cent in the early trade ahead of the monetary policy outcome.
The benchmark yield settled at 7.08 per cent on Thursday, as against 7.07 per cent on Wednesday.
Before the policy outcome, a segment of the market held optimism that the central bank might implement some instrument to ease the liquidity deficit in the system as the liquidity was largely in the deficit mode for the past four months.
The liquidity deficit in the banking system stood at Rs 1.53 trillion on Wednesday, according to the Reserve Bank of India (RBI) data.
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The RBI announced on Thursday it will conduct a 14-day variable rate repo auction on Friday to infuse Rs. 1.75 trillion into the banking system.
“The markets fell today (Thursday) majorly because of the policy. The VRR auction won’t affect the market as much, because they didn’t do anything at the policy,” said Naveen Singh, vice-president of ICICI Securities primary dealership.
The benchmark yield also rose because some traders booked profit when it broke 7.05 per cent, dealers said.
“For the past few trading sessions, we have seen that yields are not sustaining 7.04%-7.05% level (yield on benchmark bond),” Arun Bansal, Executive Director, Head of Treasury at IDBI Bank said.
“VRR is now short-term liquidity management, and the market is not reacting to it,” he added.
