Mumbai: Indian federal bond yields edged down on Monday, 12 May, as investors expected cash in the banking system to stay adequate after the Reserve Bank of India did not schedule any bond auctions for this week.
Dealers said the fall in yields this week would be determined by the amount of excess cash in the system after a 25 basis point increase in banks’ reserve requirements that took effect on Saturday and Monday’s settlement of last week’s auctions of Rs100 billion ($2.4 billion) of bonds.
At 10:18am, the 10-year yield was at 7.86%, lower than Friday’s close of 7.89%. It hit 7.78% last week, its lowest since 27 March.
“We have to see after the reverse-repo auction what are the liquidity conditions like,” a trader with a state-run bank said.
“That will determine the market movement at this point of time,” he said.
On Friday, the RBI accepted bids worth Rs230.50 billion under its daily reverse repo auction.
Overnight cash rates rose to 6.4-6.5% from Friday’s close of 5.75-6% after the increase in the cash reserve ratio (CRR), which is expected to have drained Rs90 billion from the system.
Another 25 basis point increase in CRR, the proportion of deposit banks have to keep with the RBI, takes effect on 24 May.