10-year G-Sec yield vaults over 7%

Our Bureau | | Updated on: Apr 08, 2022

Price of the benchmark 10-year G-Sec slumped about ₹1.40

Government Securities (G-Secs) prices crashed and their yields shot up as the Reserve Bank of India (RBI) revised its FY23 retail inflation projection sharply upwards and announced introduction of a standing deposit facility (SDF) at a higher interest rate to absorb liquidity.

Price of the benchmark 10-year G-Sec (coupon rate: 6.54 per cent) slumped about ₹1.40 to close at ₹95.96 (previous close: 97.355). Yield of this paper jumped 20 basis points to 7.119 per cent (6.9148 per cent).

Experts say the monetary policy is gradually moving towards a less accommodative stance.

Bond market players say introduction of SDF to absorb liquidity at 3.75 per cent and making it the new floor of the liquidity adjustment facility (LAF), replacing the fixed rate reverse repo (FRRR), implies that the LAF floor rate has moved up by 40 basis points from 3.35 per cent (FRRR rate) to 3.75 per cent.

RK Gurumurthy, Head-Treasury, Dhanlaxmi Bank, said the 10-year bond yield at current level is pricing in 25-50 basis of repo rate hikes.

“Today’s move is to be seen more as a knee-jerk reaction. The policy has not disturbed the liquidity condition presently seen which also implies RBI may not be averse to infusing further liquidity through the OMO (open market operation) route if warranted – implying higher yields may not sustain. 

“While the gradient remains upward and we can see (10-year yield) 7.25 per cent or thereabouts in Q1, the range will be 6.90-7.20 per cent for a larger part of the quarter,” he said.

RBI revised its FY23 inflation projection to 5.7 per cent from 4.5 per cent earlier. The FY23 real GDP growth projection has been revised downwards to 7.2 per cent from 7.8 per cent earlier.

Published on April 08, 2022
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