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Bond yields hit three week low after RBI tweaks FIIs' debt limit

24 Jul 2014 Evaluate

Bond yields hit their lowest level in three weeks after Reserve bank of India (RBI) allowed foreign institutional investors (FIIs) to buy $5 billion more in government bonds, while keeping the overall limit intact, a move which is expected to re-price 3-5 year bonds, preferred by FIIs.

Earlier this year, the limit for long-term investors for investment in government securities was raised from $5 billion to $10 billion within the total limit of $30 billion available to them. The RBI, however, underscored that the incremental investment limit of $5 billion shall be required to be put in government bonds with a minimum residual maturity of three years.

On the global front, U.S. long-term Treasury debt prices ended slightly lower on Wednesday in thin trading, but their near-term outlook remained positive on safe-haven demand as global tensions in the Middle East and Ukraine persisted. Meanwhile, Brent crude held steady above $108 a barrel on Thursday as a surprisingly strong reading on Chinese manufacturing bolstered hopes for higher demand in the world's No.2 oil consumer.

Back home, the yields on new 10 year Government Stock 2023 was trading 2 basis points lower at 8.64% from its previous close of 8.66% on Wednesday.

The benchmark five-year interest rate swaps were trading 1 basis point lower at 7.87% from its previous close of 7.88% on Wednesday.

The Government of India announce the sale of four dated securities for Rs 14,000 crore on July 25, 2014, including (i) 8.27% Government Stock 2020 for a notified amount of Rs 2,000 crore, (ii) New 10-year Government Stock for a notified amount of Rs 7000 crore, (iii) 8.32% Government Stock 2032 for a notified amount of Rs 2000 crore and lastly (iv) 8.30% Government Stock 2042 for a notified amount of Rs 3000 crore respectively.

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