Yields on government securities are likely to fall further in the coming weeks due to the announcement of liquidity-easing measures by the Reserve Bank of India (RBI) in its mid-term policy review on Friday, treasury officials say.
“There was a mention (in mid-term review) of conducting open market operations (OMOs) by RBI in case of liquidity strain. So, as the liquidity situation is taken care of, the yields should fall,” IDBI Bank treasury head N S Venkatesh said.
On Friday, the yield on a 10-year benchmark government bond closed at 8.37 per cent, 16 basis points lower than a week before. On the yield on a 10-year G-Secs yield next week, Venkatesh said it might move down to 8.3 per cent. OMOs are conducted by RBI to infuse liquidity in the system through buying back government bonds.
In the last three weeks, the central bank has already infused Rs 24,500 crore into the system through OMOs, and is likely to infuse more in the near future.
Other treasury officials said though yields would ease, they would not do to a great extent, as the market had already factored in positives of the monetary policy announcement. “Definitely, it will ease further, but I don’t expect yields easing to a large extent. Rather, it may hover around 8.34-8.35 on a 10-year G-sec,” said Rajaram Karanth, general manager (treasury), Corporation Bank. He also said the government’s borrowing programme would largely determine the yields on government bonds.
Recently, the government said it would borrow an additional Rs 53,000 crore from the market over and above Rs 4.17 lakh crore estimated earlier, which will translate into a higher flow of government securities for subscription during this period.