Bonds soar on RBI’s dovish tone in Bi-monthly monetary policy statement

03 Jun 2014 Evaluate

Bond yields edged lower after the central bank much in line with expectations, maintained a status quo stance in key policy repo rate, which stood unchanged at 8% and most importantly toned down its tough rhetoric on inflation in a conciliatory gesture to a new government elected on a premises of reviving the sluggish pace of economic growth. In its policy rationale and guidance, RBI underscored that if the economy stays on this course, further policy tightening will not be warranted, but on the other hand, if disinflation, adjusting for base effects, was faster than currently anticipated, this would provide headroom for an easing of the policy stance.

On the global front, U.S. Treasuries yields rose on Monday, after falling to one-year lows last week as investors completed month-end bond purchases and before a highly anticipated European Central Bank meeting and U.S. employment report due later this week. Meanwhile, brent edged up near $109 a barrel on Tuesday, just off a three-week low, as positive economic indicators from the United States and China lifted the fuel demand outlook in the world's two largest oil consumers, offsetting a rise in OPEC production.

Back home, the yields on new 10 year Government Stock 2023 were trading 7 basis points lower at 8.59% from its previous close of 8.66% on Monday.

The benchmark five-year interest rate swaps were trading 12 basis points lower at 7.96% from its previous close of 8.08% on Monday.

The Reserve Bank of India has announced the auction of 91 and 182-days Government of India Treasury Bills for notified amount of Rs 8,000 crore and Rs 6000 crore respectively. The auction will be conducted on June 4, 2014 using 'Multiple Price Auction' method.

The Government of India announce the sale of Four dated securities for Rs 16,000 crore on June 6, 2014, including (i) New 6 Years Government Stock for Rs 4,000 crore , (ii) 8.83% Government Stock 2023 for a notified amount of Rs 7,000 crore, (iii) 8.32% Government Stock 2032 for a notified amount of Rs 3,000 crore and (iv) 8.30% Government Stock 2042 for a notified amount of Rs 2,000 crore.

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