Bond yields hardened after RBI’s third bi-monthly monetary policy review

05 Aug 2014 Evaluate

Bond yields hardened after RBI’s third bi-monthly monetary policy review, which though was on expected lines on key policy rates front, but turned out to be mood-dampener after RBI slashed banks' statutory liquidity ratio and their held-to-maturity ratio by half a percentage point each, besides striking hawkish tone, thereby re-igniting fears that this would come in way of execution of government's large borrowing programme.

On the inflation front, though RBI acknowledged the moderation in CPI headline inflation for two consecutive months, it sounded a word of caution as it underscored that it would continue to monitor inflation developments closely and would remain committed to the disinflationary path of taking CPI inflation to 8% by January 2015 and 6% by January 2016.

On the global front, U.S. Treasuries prices edged up on Monday amid receding investor worries over an earlier-than-expected interest-rate hike by Federal Reserve policymakers. Meanwhile, brent held steady above $105 a barrel on Tuesday despite ample crude supplies, supported by political tension in the Middle East and North Africa and expectations that data will show a further draw on U.S. crude inventories last week.

Back home, the yield on soon to be benchmark 8.40%- 2024 bond were trading 6 basis points higher at 8.56% from its previous close of 8.50% on Monday.

The yields on existing benchmark 2023, 10-year Government Stock were trading 7 basis points higher at 8.80% from its previous close of 8.73% on Monday.

The benchmark five-year interest rate swaps were trading 1 basis point higher at 8.76% from its previous close of 8.75% on Friday.

The Reserve Bank of India has announced the auction of 364 and 91-days Government of India Treasury Bills for notified amount of Rs 6,000 crore and Rs 9000 crore respectively. The auction will be conducted on August 06, 2014 using 'Multiple Price Auction' method.

The Governments of India have announced the sale (re-issue) of four dated securities for Rs 14,000 crore on August 8, 2014, including (i) 8.35% Government Stock 2022 for a notified amount of Rs 2000 crore , (ii) 8.60% Government Stock 2028 for a notified amount of Rs 7000 crore, (iii) 9.20% Government Stock 2030 for a notified amount of Rs 2000 crore and (iv) 8.30% Government Stock 2042 for a notified amount of Rs 3000 crore.

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