Bond yields soften post RBI’s rate hike decision

28 Jan 2014 Evaluate

Pre RBI Policy Review Scenario:

Bond yields, extending previous session’s decline traded lower ahead of RBI’s third quarter monetary policy review, on the expectation of status quo stance. However, prevailing caution on Governor Raghuram Rajan's outlook on direction of rates restricted the further slide of the yields.

On the global front, US Treasuries prices fell on Monday on profit-taking from last week's safe-haven gains and as traders shrugged off weaker-than-expected data on new US home sales. Meanwhile, brent futures rose to $107 a barrel on Tuesday as the steepest fall in three weeks underpinned fresh buying, with concerns of turmoil in emerging economies and a slowdown in China keeping the gains in check

Back home, the yields on new 10 year Government Stock 2023 were trading 3 basis points lower at 8.74% from its previous close of 8.77% on Monday.

The benchmark five-year interest rate swaps were trading 2 basis points lower at 8.28% from its previous close of 8.30% on Monday.

Post RBI Policy Review Scenario:

Reserve Bank of India (RBI), shocking the markets increased the repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 8.0% from 7.75%. With this, the reverse repo rate under the marginal standing facility (MSF) and the Bank Rate stand higher at 7.0% and 9.0% respectively. However, Cash Reserve Ratio (CRR) was left unchanged at 4.0% of net demand and time liability (NDTL).

However in a bit of positive, RBI on future trajectory of rates, underscored that the extent and direction of further policy steps would be data dependent and that the further policy tightening in the near term was not predictable at this juncture.

The yields on new 10 year Government Stock 2023 which rose as much as 9 basis points following the hike, retreated to continue trading down 5 bps on the day at 8.72%.

The Government of India has announced the sale (re-issue) of '1.44% Inflation Indexed Government Stock-2023' for a notified amount of Rs 500 crore through price based auction. The auction will be conducted using uniform price method. The auction will be conducted by the Reserve Bank of India, Fort, Mumbai on January 29, 2014 (Wednesday).

The Reserve Bank of India has announced the auction of 91 and 182 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 29, 2014 using 'Multiple Price Auction' method.

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