Bond yields drop on profit booking; global risk-averse sentiment aids

22 Jun 2012 Evaluate

Bond yields dropped as the safe haven instrument took some relief out of RBI’s act of conducting Open Market Operation in order to pump some liquidity. However, globally risk-averse sentiment, which flared up after Moody’s downgrade over 15 financial institutions, also spurred investors flight to safer assets.

On the global front, US bonds edge down on profit-taking in Asia after an overnight rise, but expectations that the Federal Reserve might take more stimulus steps after the Philly Fed index of factory activity tumbling to a 10-month low, underscored a slowing US economy, kept the down run limited. Meanwhile, Brent crude oil slid below $90 a barrel for the first time in 18 months as weak economic data from China, the United States and Europe pointed to prospects for slower oil demand

Back home, the yields on 10-year benchmark 8.79% - 2021 were trading 2 basis points lower at 8.32% from its previous close of 8.34% on Thursday.

The benchmark five-year interest rate dropped 7 basis points to 7.17% from its previous close of 7.24%.

The Government of India has announced the sale of four dated securities for Rs 15,000 crore on June 22, 2012, which includes (i) “8.19 percent Government Stock 2020” for a notified amount of Rs 4,000 crore (nominal) through price based auction; (ii) “9.15 percent Government Stock 2024” for a notified amount of Rs 7,000 crore (nominal) through price based auction; (iii) “8.28 percent Government Stock 2027” for a notified amount of Rs 2,000 crore (nominal) through price based auction; and (iv) “8.83 percent Government Stock 2041” for a notified amount of Rs 2,000 crore (nominal) through price based auction.

Meanwhile, 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 June 22, 2012.

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