Indian bond yields up as liquidity steps expected

Indian bond yields up as liquidity steps expected


Mumbai: India’s 10-year federal bond yield rose on Wednesday after the finance minister indicated more steps to ease tight cash conditions, leading to expectations of a cut in the proportion of deposits that banks must invest in government debt.

The statutory liquidity requirement, or SLR, now stands at 25% and any cut would suppress demand for bonds.

At 11:27 a.m (0557 GMT), the benchmark 10-year bond yield was at 8.04%, compared with the day’s low of 7.87% hit in early trade. It closed at 7.94% on Tuesday.

“With the finance minister’s statement, expectations that the SLR may be cut has resurfaced," a dealer with a state-run bank said.

The central bank has taken a slew of measures in the past month to ease cash conditions in the banking system as a combination of local and global factors squeezed availability of funds.

It cut banks’ cash reserve requirement by 150 basis points to 7.5% effective Saturday, infusing Rs600 billion ($12.4 billion) into the banking system.

But Finance Minister Palaniappan Chidambaram said on Wednesday interbank lending still remained constrained and that the central bank and the government had agreed on the measures that required to be taken immediately.

Dealers said dollar sales by state-run banks, possibly on behalf of the central bank, to stem the rupee’s slide also constricted rupee liquidity.

Overnight cash rate were trading at 9.75%/10.00%, compared with Tuesday’s close of 8.75/9.00%.

The central bank injected Rs362.70 billion ($7.5 billion) via its morning repo auction on Wednesday, reflecting tight cash conditions.