Bond yields prolong the declining trend; RBI’s buyback eyed

08 Dec 2011 Evaluate

Bond yields edged lower for sixth session in a row as traders stepped up purchases ahead of the central bank's Rs 10,000 crore buyback later in the day, which is expected to see a good response. Also, comments from central bank official further fuelled a rally in bond prices.

Subir Gokarn, a deputy governor at the Reserve Bank of India (RBI) said on Wednesday the cash reserve ratio (CRR) is not just a liquidity tool but a monetary policy signal, amid market speculation that it might lower the ratio in order to ease tight liquidity in the banking system.

On the global front, US Treasuries prices rose on Wednesday as nervousness that euro zone leaders and the European Central Bank will disappoint investors in meetings on Thursday and Friday added a safety bid for the safe-haven debt. Meanwhile, US crude futures fell on Thursday, extending the previous day's retreat after data showing more oil stocks than expected in the United Sates worsened already-bearish sentiment amid the debt crisis in Europe.

The yields on 10-year benchmark 8.79% - 2021 bonds 2021 bonds were trading at 8.53%, lower by 6 basis points from its previous close of 8.59% on Wednesday.

The benchmark five-year interest rate swaps were trading at 7.06%, lower from Wednesday’s close of 7.15%.

The Government of India have announced the sale (re-issue) of four dated securities for Rs 13,000 crore on December 9, 2011 , which include (i) “7.99 percent Government Stock 2017” for a notified amount of Rs 2,000 crore (nominal) through price based auction, (ii) “Floating Rate Bonds 2020” for a notified amount of Rs 2,000 crore (nominal) through price based auction (iii) “9.15 percent Government Stock 2024” for a notified amount of Rs 6,000 crore (nominal) through price based auction and (iv) “New 30 year Government Stock 2041” for a notified amount of Rs 3,000 crore (nominal) through yield based auction.

Moreover, consistent with the stance of monetary policy and based on the current assessment of prevailing and evolving liquidity conditions, the Reserve Bank of India (RBI) has decided to conduct Open Market Operations (OMO) by purchasing government securities for an aggregate amount of Rs 10,000 crore on December 8, 2011.

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