Bond yields tread water as markets await positive action from new Finance Minister

01 Aug 2012 Evaluate

Bond yields were treading water day after Reserve Bank of India’s first monetary policy review, as markets awaited some positive cues from the new Finance Minister P. Chidambaram, which has got a popular reformist image and is expected to attract foreign investments, in order to prop up the growth of sagging economy. Nevertheless, broad view remains bearish for bonds, given RBI's continued hawkish stance and sustained government debt sales.

World’s most aggressive central bank, Reserve Bank of India, besides keeping the policy rates unchanged, slashed Statutory Liquidity Ratio of banks to 23%, thereby sapping the demand of safe haven demand of government bonds. As banks prefer to hold government bonds only when liquidity is in deficit as they can use the bonds to access the RBI repo window for funds.

The yields on 10-year benchmark 8.79% - 2021 were trading flat at the previous close of 8.25% in range-bound trade

The benchmark five-year interest rates were trading steady at its previous close of 7.72%.

The Government of India have announced the sale (re-issue) of four dated securities for Rs 15,000 crore on August 3, 2012 (i) “8.19 percent Government Stock 2020” for a notified amount of Rs 4,000 crore (nominal) through price based auction; (ii) “8.33 percent Government Stock 2026” for a notified amount of Rs 7,000 crore (nominal) through price based auction; (iii) “8.28 percent Government Stock 2032” 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 `2,000 crore (nominal) through price based auction. The auctions will be conducted using uniform price method. The auctions will be conducted by the Reserve Bank of India, Fort, Mumbai on August 03, 2012 (Friday).

The Reserve Bank of India has announced the auction of 91 and 182- day Government of India Treasury Bills for notified amount of Rs 7,000 crore and Rs 5000 crore respectively, to be conducted on August 01, 2012 using 'Multiple Price Auction' method.

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