Bond yields steady, possible RBI measures weigh

Bond yields steady, possible RBI measures weigh

Mumbai: The bond yields were little changed on Tuesday, with sentiment cautious on uncertainty whether the central bank would take aggressive monetary measures to check price pressures in Asia’s third-biggest economy.

The 10-year benchmark bond yield ended at 7.80%, steady from Monday’s close. It traded in a narrow range of 7.78 to 7.82% in the day. Last week, it had fallen to 7.71%, its lowest since 9 February.

Volumes were a high Rs94.7 billion ($2.1 billion) on the central bank’s trading platform.

The central bank reviews policy on 20 April and a Reuters survey in late March showed 18 out of 20 economists expect it to raise both the repo rate, at which its absorbs excess cash, and the reverse repo rate, at which it lends funds to banks at the meeting.

“Overall the market behaviour has been to buy on liquidity levels and meet SLR (statutory liquidity ratio) demand. The market has more or less discounted repo and reverse repo hikes," said Paresh Nayar, head of FX and money markets at First Rand Bank.

“Now the fears looming large are whether they are going to play with the cash reserve ratio (CRR) also," he said, referring to the banks’ reserve requirement, which is at 5.75% now.

The Reserve Bank of India (RBI) last month unexpectedly raised interest rates for the first time since it began cutting in 2008, citing intensifying inflationary pressures and a steady economic recovery.

Traders said buying in bonds during the session was supported by ample cash conditions in the banking system with the RBI receiving bids worth Rs961.60 billion at its daily reverse repo auction on Tuesday.

Traders also watched for supplies later this week. The government is due to sell Rs120 billion of bonds on Friday, part of the Rs2.87 trillion it plans to sell in the April-September period.

The benchmark five-year interest rate swap ended at 6.91/93%, from Monday’s close of 6.89/92.

In interest-rate futures on the National Stock Exchange, the June contract implied a yield of 8.2814%.