 "Street expects partial devolvement in Friday's govt bond auction")
The notified amount in the last auction was Rs 15,000 crore.
Wednesday the yield on the 10-year benchmark government bond rose 8.50% during intra-day trades due to these measures. However, today there was recovery in the bond market. The yield on the 10-year benchmark government bond 7.16% ended at 8.19% compared with previous close of 8.42%.
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Today the fall in yields were the most in over three years, snapping three days of losses. “There are three things which are positive for the bond market. The rupee has been strengthening, today the underwriting commission cut-off rates came lower and there was some short covering by banks,” said a government bond dealer with a private bank.
But despite that treasury officials are expecting partial devolvement because the auction is just few days before the first-quarter review of the monetary policy on July 30 and the street is awaiting more clarity about liquidity and interest rates in the policy.
On Tuesday, RBI announced that the overall limit for access to Liquidity Adjustment Facility by each individual bank would be capped at 0.5% of its own net demand and time liabilities outstanding as on the last Friday of the second preceding fortnight. This came into effect from yesterday and would remain in force until further notice.
Besides that, RBI said that effective from the first day of the next reporting fortnight (July 27), banks would be required to maintain a minimum daily cash reserve ratio balance of 99% of the requirement.
Today banks borrowed Rs 21,028 crore from RBI's Liquidity Adjustment Facility (LAF) compared with Rs 28,835 crore on Wednesday.