Yield may harden in near-term on RBI inaction on rates
Mumbai: Yield on the 10-year benchmark Government securities (G-secs) is likely to harden in near future after the Reserve Bank left key policy rates unchanged on Monday, bank officials said Tuesday.
Further, concerns relating to inflation and Government borrowing are likely to support this trend, they added.
"The bond market has rallied in the hope of a cut in the policy rate during the mid-term policy review, which did not happen. So, I expect the 10 year G-secs to trade between 8.10 and 8.25 percent in the near-term," IndusInd Bank Alco and economic and market research head Moses Harding said.
After the announcement of credit policy, the 10-year benchmark yield had jumped to 8.17 percent from the Friday's close of 8.05 percent though it moderated a bit to 8.11 percent today from yesterday's close.
Harding further said the Fitch downgrade would also have negative impact on both debt and equity markets.
Contrary to market expectations, RBI had maintained a status quo on key policy rates despite weak April IIP and Q4 GDP numbers, which dipped to a nine-year low of 5.3 percent in FY12 as it sees upward bias to inflation in future.
Some other bankers also said the benchmark G-sec will hover between 8.10 and 8.20 percent in the near-term.
"I expect the yields to hover in the 8.10-8.20 percent range in the near-term," Vijaya Bank Executive Director Subhalakshmi Panse said.
She said the RBI's reiteration to conduct open market operation (OMOs) would take care of the liquidity concerns.
In the credit policy document, the Central bank had said, "even as liquidity situation converges to the comfort zone, the Reserve Bank will continue to use OMOs as and when warranted to contain liquidity pressures."
Another public sector bank official, who wished not to be quoted, said Government borrowing in the coming weeks will put pressure on yield. "Though the RBI is likely to conduct OMOs, there will be pressure on the yield," he said, adding inflation concerns also weigh on the economy.