Benchmark yield up one basis point

Mumbai, June 7: The 10-year benchmark yield rose just a basis point on Tuesday after the Reserve Bank of India (RBI) kept the key rates unchanged in its monetary policy review.

The 7.59% bonds maturing in 2026 closed at 7.48%, up 1 basis point from Monday' s closing—a revert to the levels seen during the previous week.

Between April and June, the yield remained in the range of 7.42-7.49%, while over the last two-three weeks, it remained in the range of 7.46-7.49%.

It is noteworthy that the central bank has been conducting open market operation( O MO) purchases of governmentsecurities to the tune of R70,000 crore since April this year. OMO purchases are conducted when there is liquidity deficit in the banking system, while OMO sales are carried out when there is excess liquidity in the system.

Despite waning of liquidity pressures in early April, stronger-than-usual currency demand during the first two months of the financial year and build-up of cash balances by the government from the second week of May tightened liquidity conditions from mid-May, the RBI said in its policy statement.

In order to mitigate these pressures, the RBI injected liquidity through purchases under open market operations (OMOs) of R70,000 crore during April-May in pursuance of the revised liquidity management framework outlined in the April bimonthly policy statement, it added.

As Hitendra Dave, head of global banking and markets for India at HSBC Holdings, pointed out, from here on the deciding factor for the benchmark yield would be liquidity. “We have been seeing improving conditions over the last few months and if it continues along with a possible accommodative stance of the central bank that gets translated into action, we may see a 50 basis points drop in the yield over the next few months.

Foreign portfolio investors have also been under subcribing the G-Sec quota since the last two auctions. FPIs put up bids worth R4,011 crore against R4,046 crore put up for auction. In the auction before that, FPIs had bid R2,957 crore against a notified amount of R3,340 crore.

According to regulations, auctions are done when 90% of the investment limit in GSecs is utilised. The latest depository data indicates that FPIs have utilised 96.98% of the total limit which currently stands at R1.4 lakh crore for all categories.