Mumbai: Government bonds were little changed on 16 April as tighter cash conditions were offset by demand from investors to meet reserve requirement. The yield on the 10-year bond ended at 8.10%, the same as Friday’s close.
“Basically, SLR (statutory liquidity ratio) demand is keeping the bonds from treading lower,” the chief trader at a primary dealer said.
Surplus cash in the banking system, as reflected by the daily reverse repo auction, shrunk to Rs200 crore on Monday from Rs29,300 crore on Friday, as a phased increase in reserve requirement drained cash.
The first leg of a two-stage increase in the CRR—the percentage of deposits banks need to keep with the central bank —took effect on Saturday, draining an estimated Rs7,750 crore from the system. The second leg is effective from April 28. Overnight call rates rose to 10.50-11%, up from the previous close of 5.0-5.25%. The overnight rate has fluctuated in a wide range over the last month due to variations in cash conditions.
Last month, overnight rates hit 80%—the highest in more than 10 years—as banks curtailed lending ahead of the close of the financial year. Last week, it hit a 19-month low of 2.0-2.25%.
The Reserve Bank of India (RBI) will sell Rs3,000 crore of market stabilisation bonds on Wednesday to absorb cash.
In addition, after the market had shut on Monday, the central bank announced five states would issue bonds totalling Rs1,837 crore on April 19.
Coupon and redemption payments this week are expected to total more than Rs1,100 crore.