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Bond yields suffer sharp decline on Wednesday

22 Jan 2014 Evaluate

Bond yields, plunged sharply on Wednesday after central bank panel suggested targeting Consumer Price Index (CPI), its main policy objective thereby raising prospects of a sustained period of high interest rates. Reserve Bank of India (RBI) panel on Tuesday underscored that it should set an eventual target of 4 per cent for consumer price inflation (CPI), with a plus or minus 2 per cent band. Further, the panel added that it should aim to lower CPI, currently at 9.87 per cent, to 8 per cent over the next 12 months and to 6 per cent in the next 24 months.

On the global front, most U.S. Treasuries prices were little changed on Tuesday, with benchmark yields holding near their five-week lows, on easing concerns about the Federal Reserve further paring its bond-buying next week. Meanwhile, brent futures rose above $107 a barrel on Wednesday as outlook reports indicated global oil demand will rise more quickly this year as economic growth in industrialised countries accelerates.

Back home, the yields on new 10 year Government Stock 2023 were trading 7 basis points lower at 8.62% from its previous close of 8.69% on Tuesday.

The benchmark five-year interest rate swaps were trading 9 basis points lower at 8.20% from its previous close of 8.29% on Tuesday.

In order to address the temporary liquidity deficit situation, the Reserve Bank has decided to conduct Open Market Operations by purchasing the following government securities for an aggregate amount of Rs 10,000 crore on January 22, 2014 (Wednesday) through multi-security auction using the multiple price method.

The Reserve Bank of India (RBI) has announced the auction of 91 & 364 days Government of India Treasury Bills for notified amount of Rs 4,000 crore and Rs 3000 crore respectively. The auction will be conducted on January 22, 2014 using 'Multiple Price Auction' method.

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