Mumbai: Indian federal bond yields eased today as market expectations grew that interest rates would be cut at the weekend, but intermittent paring of positions was checking a sharp fall in yields.
At 10:35am, the 10-year benchmark bond yield was at 6.8%, 4 basis points below its Thursday’s close of 6.84%. On Thursday, it had fallen as low as 6.71%, its lowest since April 2005.
Volumes were at Rs33.9 billion ($682 million) on the central bank’s electronic trading platform, with the 10-year bond being most heavily traded security.
“Markets are expected to be rangebound ahead of a likely rate cut over the weekend,” said a senior trader at a state-owned bank.
“The yields are expected to be in a range of 6.75% to 6.85% during the day,” he added.
Central bank Governor Duvvuri Subbarao will address a news conference at noon on 6 December, 2008, and the market expects a rate cut will be announced then.
A senior government official also said yesterday that the central bank was likely to lower rates as part of a stimulus package the authorities were preparing.
The central bank since October has slashed its key lending rate by 150 basis points and cut bank’s cash reserve ratio by 350 basis points to shield the economy from the global credit crisis.
However, dealers said that the sentiment was also slightly affected by uncertainly over cash conditions next week. Corporates would be making their quarterly tax payments over the coming fortnight which may tighten liquidity.
Cash rates, a barometer for inter-bank liquidity have been close to 6% for nearly a week.