Indian bond yields ease on rate hopes, liquidity

Indian bond yields ease on rate hopes, liquidity

Mumbai: Indian federal bond yields eased on Monday on growing expectations the RBI may cut its short-term lending rate at a policy review on 24 October as a buffer against the global financial crisis and economic downturn.

At 9:49am, the 13-year federal bond yield was at 7.99%, below Friday’s close of 8.07%. Trade in the benchmark 10-year bond was suspended for semi-annual interest payments. It closed at 7.72% on Friday.

Volume was a thin Rs1,50 crore on the central bank’s electronic trading platform, with the 13-year bond the most actively traded.

Three dealers said volume was thin as settlements for Monday’s trading would take place on Wednesday due to a central bank strike on Tuesday. Usually, settlement is the next working day. “Liquidity is good and that might help demand at today’s bond auctions," said a dealer at a state-run bank.

The central bank is auctioning Rs10,000 crore ($2 billion) of bonds later in the day.

Overnight cash rates were at around 7%, indicating adequate cash conditions in the money market after the Reserve Bank’s liquidity injections last week.

The government and the central bank have taken a number of measures over the past month to ease cash conditions and staunch the effects of the global financial crisis, including cutting banks’ cash reserve requirements.