Bond yields hardens post RBI leaving key policy rates untouched, slashes CRR by 25 bps

Pre Second Quarter Review of Monetary Policy 2012-13 Scenario:

Bond yields were trading lower on emergence of safe-haven buying on rising bets on the probability of a rate cut at the central bank's policy review following the less hawkish tone of macro-economic report on Oct 29. Additionally, finance minister Chidambaram's comments on reining in the fiscal deficit, also heightened the case for rate cut. Earlier on Monday, Finance Minister P Chidambaram unveiled a five-year road map for fiscal consolidation to promote investments, contain inflation and reduce fiscal deficit to about three percent to take India onto the high growth trajectory

On the global front US Treasury debt prices rose on Monday as a perceived gain in political risks in Italy and concerns about the strength of the US economic recovery bolstered safe-haven buying in thin trade as Hurricane Sandy was on track to pummel the US East Coast Meanwhile, Brent crude slipped sub $109 a barrel on Tuesday as Tropical Cyclone Sandy shut East Coast refineries, roads and airports, reducing crude and fuel demand in the world's largest oil consumer

The yields on 10-year benchmark 8.79% - 2021 were trading lower by 2 basis points at 8.11% from its previous close of 8.13%.

The benchmark five-year interest rates were trading 2 basis points higher at 6.97% from its previous close of 6.99%.

The Reserve Bank of India has announced the auction of 91-day and 364-day Government of India Treasury Bills for notified amount of Rs 5,000 crore each. The auction will be conducted on October 31, 2012 using 'Multiple Price Auction' method.

The Government of India has announced the sale (re-issue) of three dated securities for Rs 13,000 crore which includes (i) ‘8.07 percent Government Stock 2017-JUL’ for a notified amount of Rs 3,000 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; and (iii) ‘8.97 percent Government Stock 2030’ for a notified amount of Rs 3,000 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, Mumbai Office, Fort, Mumbai on November 02, 2012.

Post Second Quarter Review of Monetary Policy 2012-13 Scenario:

The yields on 10-year benchmark 8.79% - 2021 were trading higher by 3 basis points at 8.16% from its previous close of 8.13%, post RBI extending its battle against inflation, left key policy rates, viz. repo and reverse repo, unchanged at 8 per cent and 7 per cent respectively.

But in a much anticipated move, slashed cash reserve ratio (CRR), the proportion of deposits banks have to park with RBI, by 25 basis points from 4.50 per cent to 4.25 per cent, which in turn dashed the hopes of RBI holding Open Market Operations any time soon. The apex bank’s move of slashing CRR by 25 bps is expected to inject Rs 17,500 crore of primary liquidity into the banking system to pre-empt potentially tightening liquidity.