Bond yields plunge after RBI’s surprising 25 basis points rate cut move

15 Jan 2015 Evaluate

Bond yields edged sharply lower on Thursday after the Reserve Bank of India (RBI), in a big surprise move cut the repo rate by 25 basis points to 7.75% with immediate effect, well ahead of its monetary policy on February 3, 2015, which is the first rate cut by RBI since January 2014. Consequently, the reverse repo rate under the LAF stands adjusted to 6.75% and the marginal standing facility (MSF) and the bank rate, determined at a spread of 100 basis points above repo rate, stands at 8.75%. Additionally, lower crude oil prices and overnight fall of US treasury yields also weighed on yeilds.

On the global front, The U.S. 30-year Treasuries yield fell to a record low on Wednesday as disappointing U.S. retail sales data raised bets the Federal Reserve would not raise interest rates this year. Meanwhile, crude oil dipped on Thursday after a volatile session the previous day, when prices rebounded sharply from near-six-year lows that reflected a global oversupply.

Back home, the yields on new 10 year Government Stock 2023 was trading 10 basis points lower at 7.67% from its previous close of 7.77% on Wednesday.

The benchmark five-year interest rate swaps were trading 6 basis points lower at 6.89% from its previous close of 7.05% on Wednesday.

The Government of India announce the sale of Four dated securities for Rs 14,000 crore on January 16, 2015, including (i) 8.08% Government Stock 2022 for a notified amount of Rs 3000 crore, (ii) 8.15% Government Stock 2026 for a notified amount of Rs 6000 crore, (iii) 8.24% Government Stock 2033 for a notified amount of Rs 2000 crore and (iv) 8.17% Government Stock 2044 for a notified amount of Rs 3000 crore.

The Reserve Bank of India will conduct overnight repo variable rate auction for a notified amount of Rs 20,000 crore today (January 15, 2015, Thursday). The auction will be conducted between 4.00 p.m. and 4.30 p.m. as per the revised guidelines on Term Repo Auctions issued on February 13, 2014

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