With a couple of auctions remaining in the government’s market borrowing plan for the current financial year, higher demand for the papers may help keep the yields in check, say traders.
According to the revised issuance calendar, the government is slated to raise funds through two weekly auctions worth Rs 12,000 crore each. The Reserve Bank of India (RBI) has announced one auction on February 24.
“Yields may trade around 8.12-8.20 per cent next week on good buying interest, as there are only two auctions left,” said T S Srinivasan, general manager (treasury), Indian Overseas Bank. On Friday, yields on the 10-year benchmark government bonds closed at 8.19 per cent, one basis point lower than the previous close.
The demand for banks and insurance companies to meet their minimum regulatory requirements towards the end of the financial year will help RBI carry out the last two auctions smoothly. Also, banks ramping up deposits to meet business targets will result into a widened base for the calculation of the minimum Statutory Liquidity Ratio.
Traders expect the central bank to conduct another couple of open market operations (OMOs) to buy illiquid securities from the market. “At least one more OMO is expected next week,” said a bond dealer with a domestic brokerage. So far, RBI has not announced any OMO for next week.
Since November 2011, the central bank has infused about Rs 82,000 crore by purchasing government securities in 10 rounds of OMO auctions. These helped bring down yields from a three-year high of nine per cent to the current range of 8.15-8.30 per cent despite tight liquidity conditions.
More From This Section
Banks borrowed around Rs 1.67 lakh crore daily from RBI under the Liquidity Adjustment Facility last week. Call money rates shot up to nine per cent, reflecting tight liquidity conditions. On Thursday, banks and money markets were shut on account of elections to the Brihanmumbai Muncipal Corporation in Mumbai.
The government has raised Rs 4.74 lakh crore so far this financial year, as against Rs 4.27 lakh crore in the year-ago period. It has revised the total market borrowing plan twice.