Bond cheers RBI’s status quo stance in Mid-quarterly policy review

18 Dec 2013 Evaluate

Bond yields slipped after Reserve Bank of India, in a positive surprise for the markets, maintained a status quo stance of key policy rates as it left the policy repo rate and reverse repo rate under the liquidity adjustment facility (LAF) unchanged at 7.75% and 6.75% respectively. Further, the cash reserve ratio (CRR) of scheduled banks remains unchanged at 4.0% of net demand and time liability (NDTL). However, despite maintaining a status quo, RBI underscored that it will have to act, if the expected softening of food inflation does not materialise and translate into a significant reduction in headline inflation in the next round of data releases, or if inflation excluding food and fuel does not fall.

On the global front, U.S. government bond prices held on to gains on Tuesday after the Treasury sold $32 billion in two-year notes on good demand and investors waited for a policy statement from the Federal Reserve. Meanwhile, brent futures held steady above $108 a barrel on Wednesday after sliding the previous day, with investors reluctant to lock in positions ahead of a U.S. Federal Reserve briefing that is expected to shed light on a plan to taper its monetary stimulus.

Back home, the yields on new 10 year Government Stock 2023 were trading 12 basis points lower at 8.79% from its previous close of 8.91% on Tuesday.

The benchmark five-year interest rate swaps were trading 10 basis points lower at 8.40% from its previous close of 8.50% on Tuesday.

The Reserve Bank of India has announced the auction of 91 and 182 days Government of India Treasury Bills for notified amount of Rs 6,000 crore each. The auction will be conducted on December 18, 2013 using 'Multiple Price Auction' method.

The Government of India have announced the sale (new issue/re-issue) of four dated securities for Rs 15,000 crore on December 20, 2013, which includes, (i) 8.12% Government Stock 2020 for a notified amount of Rs 4,000 crore, (ii) 8.28 % Government Stock 2027 for a notified amount of Rs 7,000 crore, (iii) 9.20 % Government Stock 2030 for a notified amount of Rs 2000 crore and (iv) New 30 year Government Stock 2043 for a notified amount of Rs 2000 crore.

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