Mumbai: Indian federal bond yields rose slightly on Monday, 5 May, from one-month lows as cash availability is expected to tighten this week due to government debt auctions and ahead of an increase in reserve requirements.
At 9:47am (0417 GMT), the 10-year bond yield was at 7.85%, a notch above Friday’s close of 7.84%, which was its lowest since 27 March.
The yield fell 31 basis points last week as the Reserve Bank of India (RBI) left interest rates unchanged at a policy review, but said it would raise the cash reserve ratio by 25 basis points, on top of a 50 basis points increase announced earlier in April.
“The near-term is still bond positive because the rates haven’t been raised and liquidity is comfortable,” a dealer with a private sector bank said.
The government is scheduled to sell Rs100 billion ($2.5 billion) of bonds and Rs65 billion of treasury bills this week.
The cash reserve ratio (CRR), which is the proportion of cash banks should keep with the RBI, will rise by 25 basis points on 10 May, draining about Rs90 billion. It will rise again by 25 basis points on 24 May when the increase announced last week takes effect.
Surplus cash in the banking system, as reflected by the daily reverse repo auction, was Rs202.50 billion on Friday.
Dealers said investors were encouraged to buy after Tuesday’s policy review, as they believed the RBI may continue to use CRR as a tool to absorb inflation-fuelling surplus cash in the banking system instead of raising key policy rates.