Despite the Reserve Bank of India (RBI) infusing Rs 6,232 crore liquidity through open market operations (OMO) purchase of government bonds, yields rose on Friday as RBI also auctioned government bonds for a notified amount of Rs 15,000 crore.
The OMO was announced for up to Rs 8,000 crore, while the infusion was lesser than that. Liquidity still remains tight, which resulted in yields rising. The yield on the 10-year benchmark government bond 7.16 per cent 2023 ended at 8.26 per cent, compared to the previous close of 8.23 per cent. During intra-day trades, the yield rose to 8.34 per cent.
RBI also announced that as a one-time measure, banks were allowed to transfer statutory liquidity ratio securities from available-for-sale/held-for-trading to held-till-maturity category up to the limit of 24.50 per cent of net demand and time liabilities.
This transfer can be made over and above the one-time shift in investments to HTM that banks might have done at the beginning of the accounting year.
However, RBI said if banks choose to transfer securities, the transfers must be done at the earliest but not later than September 30.
However, despite the rise in yields on Friday, government bonds posted their biggest weekly gain in over four years due to the central bank's moves to support the rupee and liquidity in the market.
The 7.16 per cent 2023 bond yield fell 64 basis points over the week, the sharpest since January 16, 2009.
On Friday, RBI's government bond auction also failed to sail smoothly as there was partial devolvement on primary dealers to the tune of Rs 1,729 crore. According to government bond dealers, the partial devolvement was because the market was not happy with the auction cut-off yields.
