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Bond yields edge lower on RBI’s buyback announcement

29 Feb 2012 Evaluate

Bond yields edged lower as sentiment perked up after the Reserve Bank of India (RBI) announced Rs  12,000 crore of debt buyback through open market operations (OMO) this week. Expectation of a sharp slowdown in growth in the quarter to end-December, which could exert pressure on the central bank to cut rates in the March 15 policy review, also supported to the sentiment.

Meanwhile, the pace of economic growth slowed substantially in the October-December quarter as GDP growth rate slipped to lowest levels in last ten quarters at 6.1 percent as compared to the growth rate of 8.3 percent in Q3, 2010-11.

On the global front, US Treasury debt prices were steady to slightly lower on Tuesday as economic data painted a mixed picture of the US economy, shifting investors' focus to testimony from Federal Reserve Chairman Ben Bernanke this week. Benchmark 10-year Treasury notes traded 2/32 lower in price, with their yields rising marginally to 1.94 percent from 1.93 percent late Monday.

Meanwhile, Brent crude rose above $122 on Wednesday, snapping two days of losses, in line with gains across broader financial markets on expectations that cheap loans from the European Central Bank will spur buying of riskier assets.

The yields on 10-year benchmark 8.79% - 2021 bonds were down at 8.19% from its previous close of 8.21% on Tuesday.

The benchmark five-year interest rate swaps were trading lower at 7.39% from its previous close of 7.41%.

Consistent with the stance of monetary policy and based on the current assessment of prevailing and evolving liquidity conditions, the Reserve Bank has decided to conduct Open Market Operations by purchasing government securities for an aggregate amount of Rs 12,000 crore on March 02, 2012 through multi-security auction using the multiple price method.

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