 "Bonds, Govt bond")
Government bond yields fell on Thursday, mirroring the decline in US Treasury yields, which softened following the outcome of the US Federal Reserve (Fed) meeting. The rate-setting panel opted to keep rates unchanged and maintained its projection for three rate cuts throughout 2024.
According to CME’s FedWatch Tool, the expectations of a rate cut in June rose to about 74 per cent after the Fed’s decision, compared to 59 per cent a week ago.
The yield on the benchmark 10-year government bond fell by 4 basis points to settle at 7.05 per cent on Thursday, down from 7.09 per cent on Wednesday.
“The market gained positivity after the Fed meeting as they said there will be three rate cuts,” said a dealer at a state-owned bank. “Then, the demand at the state development loan auction was also good,” he added.
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Two states raised Rs 24,000 crore at the additional state bond auction today. The cut-off yield on the 10-year state bond was set at 7.42 per cent, compared to the range of 7.44 per cent to 7.5 per cent in the previous auction on Tuesday.
“Banks were there, but pension funds and insurers were the major participants,” said a dealer at a state-owned bank. “The yield (on the benchmark 10-year government bond) should remain around 7.05 per cent. We will need one more positive news for it to fall below that,” he added.
Meanwhile, the Reserve Bank of India (RBI) conducted a five-day variable rate repo auction as the deficit liquidity in the system neared Rs 1 trillion, and the weighted average overnight money market rates rose to 6.73 per cent near the marginal facility rate, said market participants.
The central bank received bids worth Rs 71,252 crore, against a notified amount of Rs 50,000 crore at the auction.
The liquidity deficit in the banking system widened to Rs 97,529 crore on Wednesday, from Rs 54,248 crore on Tuesday, according to the latest data from the RBI.
Market participants said that the liquidity deficit widened due to advance tax payments. A total of around Rs 2 trillion outflows are expected until March 31.
The central bank will conduct another 14-day VRR auction on Friday to infuse Rs 25,000 crore into the system.
RBI Governor Shaktikanta Das elaborated on liquidity conditions in his monetary policy statement, attributing them to external factors and expecting them to rectify in the foreseeable future, bolstered by market interventions by the central bank.
He said the RBI is agile and adaptable in its liquidity management, employing both repo and reverse repo operations. He said the RBI would utilise a judicious mix of instruments to regulate both short-term and long-term liquidity, ensuring that money market interest rates evolve systematically while upholding financial stability.
