The Reserve Bank of India Governor D Subbarao’s indication on room for further rate cuts today put breaks on the hardening of yields on government securities (G-secs).
Dealers said that while worries about the Centre’s large borrowings remain, the yield on G-secs turned soft in response to governor’s comments in Tokyo.
Yields had moved up for two days after the government announced its intent to borrow in excess of Rs 3,00,000 crore during 2009-10.
The new benchmark paper (6.05 per cent GS 2019) today closed at Rs 99.90, below its face value of Rs 100. At close, the yield on the paper was 6.06 per cent as against 6.14 per cent yesterday.
The volume was lower at Rs 690 crore compared to Rs 1,235 crore yesterday, according to data from the Negotiated Dealing System.
In the case of the most traded paper (8.24 per cent GS 2018), price movement between high and low was Rs 1.45. The yield touched a high of 6.50 per cent but softened to close at 6.36 per cent (Rs 112.87) as against 6.48 per cent (Rs 112) yesterday, while registering trading volumes of Rs 4,130 crore.
The central bank may also signal its stance through the open market operations, scheduled for tomorrow. RBI will purchase securities worth Rs 6,000 crore through OMO. Of this, it will buy 8.24, 2018 paper worth Rs 3,000 crore. Some traders bought gilts on the hope that the securities they were buying may be bought back at a lower yield by RBI through OMO.
“If the yields decline, it will help the government to borrow at a lower cost, especially when the quantum of borrowing is high,” said S Srinivasaraghavan, head of treasury at IDBI Gilts.
Besides signals from OMO operations, further cuts in repo rate — the rate at which banks borrow from RBI — and the reverse repo rate are expected over the next few weeks, he added.
Dealers are keeping an eye on the inflation data, due tomorrow. If inflation falls, as expected, it may prompt dealers to purchase some government securities.
Call ends steady
One-day call rate ended at 4.10-4.15 per cent, flat from Tuesday. CBLOs ended at weighted average rate of 3.99 per cent, compared with 4.02 per cent.
Banks up CD issuance
Issuances of certificates of deposit (CDs) rose today as banks preferred stable rates prevailing in the primary market to raise funds, dealers said. Today, banks placed certificates of deposit worth Rs 2,150 crore as against Rs 1,025 crore on Monday.
