Developments on foreign front push yields down

Yields on benchmark 10 year bond 7.80% 2020 bond closed the week at 7.37, 12 bps down from last week’s close of 7.49. In the initial part of the week, yields rose 4 bps as RBI sold Rs 6,000 cr of cash management bills on Tuesday and announcement of issue of Rs 13,000 cr worth of bonds for the week. Comments of RBI Governor regarding rising inflation also kept the pressure on bonds but on Thursday as results of ongoing 3G spectrum came in yields started falling and closed at 7.38%.

Auction is now expected to fetch Rs 67,700 cr, about Rs 35,000 cr more than originally expected. This was taken as an indication that borrowing might be lesser than targeted and led to buying in bonds. Strength in US Treasuries and falling oil prices also kept the mood upbeat.

Liquidity conditions eased as compared to the previous week. Average daily funds parked at the reverse repo window stood at Rs 42,000 cr.

For the next week, we expect the liquidity conditions to remain comfortable and yields to trade within a range taking directions from US Treasuries.

Author name:Praveen Bajaj

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