Bond yields soar post RBI’s mid-quarterly policy review

17 Sep 2012 Evaluate

Bond yields rose after falling in early deals as world’s most aggressive central bank, RBI, much against the street expectation, kept key policy rates unchanged at previous levels. Meanwhile, delivery of 25 basis rate cut in CRR, which also dampened hopes of further Open Market Operation’s, weighed on the prices of bonds.

Meanwhile, Reserve Bank of India (RBI), in its mid-quarter monetary policy review, walking through a much thin rope, only slashed cash reserve ratio (CRR) of scheduled banks by 25 basis points from 4.75 per cent to 4.50 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning September 22, 2012. However, world’s most aggressive central bank, furthering its anti-inflationary stance, maintained a status quo on key policy rates, viz. repo and reverse repo, currently at 8 per cent and 7 per cent respectively. Meanwhile, marginal standing facility (MSF) rate and the Bank Rate stood unchanged at 9.0 per cent.

On the global front, US Treasuries were trading steady on Monday, stabilizing after a sell-off in longer-dated bonds last week as the Federal Reserve's latest stimulus announcement underpinned riskier assets. Meanwhile, Brent crude rose for the eighth consecutive session on Monday to just below $117 a barrel, though prices remained below a four-month peak hit on Friday on worries that high oil prices could hamper efforts to boost a struggling world economy.

The yields on 10-year benchmark 8.79% - 2021 were trading unchanged at its previous close of 8.18%, trimming earlier falls as RBI keeps rates on hold. Bond yields were trading at 8.12% before RBI’s policy review.

The benchmark five-year interest rates edged 4 basis points lower at 7.17% from its previous close of 7.21% on Friday.

The Reserve Bank of India has announced the auction of 364-day and 91-day Government of India Treasury Bills for notified amount of Rs 5,000 crore and Rs 7,000 crore respectively. The auction will be conducted on September 20, 2012 using 'Multiple Price Auction' method.

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