MUMBAI: RBI‘s decision to pay govt reord Rs 2.1 lakh crore dividend – which will infuse substantial liquidity in to the banking system – led to a smart rally in the bond market on Wednesday. As a result, the benchmark yield on the 10-year paper fell below the psychologically important 7% mark after about a year.
At close of trade, the 10-year bonds maturing in 2034 closed at a yield of 6.99% while the one maturing in 2033 (the outgoing 10-year benchmark bonds) closed at 7.04%.Both the bonds saw yields fall by 6 basis points (100 basis points = 1 percentage point), RBI data showed.
Bond dealers, however, said for further rally in sovereign bonds they would want to know how and where the govt will use the huge pay-in from the central bank. In case the govt cuts its total market borrowing for the current fiscal which could lead to a rally in gilts.
Currently, the banking system is facing Rs 1-lakh-crore deficit, which is keeping yields at an elevated level. After the election, if govt starts spending, which will infuse liquidity into the system that could help soften yields in the market, said a bond dealer. A fresh rally in bonds could also start if the ruling BJP-led govt comes back to power with a comfortable majority. Any unusual election result could lead to some selloff in the bond market, the dealer said.
A section of the market players feels that govt should continue to cut its short-term borrowings (which are bonds of less than 5-year maturity). Such a policy could soften rates at the shorter end of the curve. And since corporates mostly borrow at the shorter end of the yield curve, a softer rate could also help corporates through lower interest outgo.
At close of trade, the 10-year bonds maturing in 2034 closed at a yield of 6.99% while the one maturing in 2033 (the outgoing 10-year benchmark bonds) closed at 7.04%.Both the bonds saw yields fall by 6 basis points (100 basis points = 1 percentage point), RBI data showed.
Bond dealers, however, said for further rally in sovereign bonds they would want to know how and where the govt will use the huge pay-in from the central bank. In case the govt cuts its total market borrowing for the current fiscal which could lead to a rally in gilts.
Currently, the banking system is facing Rs 1-lakh-crore deficit, which is keeping yields at an elevated level. After the election, if govt starts spending, which will infuse liquidity into the system that could help soften yields in the market, said a bond dealer. A fresh rally in bonds could also start if the ruling BJP-led govt comes back to power with a comfortable majority. Any unusual election result could lead to some selloff in the bond market, the dealer said.
A section of the market players feels that govt should continue to cut its short-term borrowings (which are bonds of less than 5-year maturity). Such a policy could soften rates at the shorter end of the curve. And since corporates mostly borrow at the shorter end of the yield curve, a softer rate could also help corporates through lower interest outgo.