Government bond yields, after the announcement of the Union Budget (that reported borrowings as per market expectations), have hardened 5-8 basis points (bps). The 10-year benchmark bond yield that faced strong resistance at the 7.90% level breached the same to trade around 7.94% levels for the past three trading days.
Total negotiated dealing system-order matching segment volumes stood at Rs6,720 crore, 87% of which were contributed by the 2020 and 2016 bonds. Although market speculation on FY11 borrowing has been put to rest, the over-riding negative now seems to be mounting inflationary pressure reflected in today’s food price inflation. While the 2-year bond remains relatively illiquid, the soaring 10-year yield has steepened the curve.
Graphic: Ahmed Raza Khan/Mint
Annual inflation for the week ended 20 February stood benign for the primary articles index (down 85 bps week-on-week to an annual growth of 15%), while the same for the fuel, power, light and lubricants index was lower by 30 bps to 9.59%. Food inflation, however, continued to harden as it closed 29 bps higher at 17.87%.
Certificate of deposits (CD) and commercial paper rates have firmed up for the less-than-one-year segment relative to the longest maturity. Strong demand in one-year CD instruments has tightened the spread between one-year CDs and ones with shorter maturity. Banks mopped up nearly Rs1,600 crore through primary CDs.
Lending in the overnight money market segment has remained firm around the Rs1 trillion mark; collateralized borrowing and lending obligation volumes indicating preference for the most “liquid” parking for cash has been robust, averaging over Rs84,000 crore for the past three trading days.