With bond yields softening by 4 basis points on Thursday, the last trading day of the fourth quarter and the financial year, banks may avoid huge mark-to-market losses on their government securities portfolio.

The yield on the benchmark 8.15 per cent government bond, which matures in 2022, ended lower at 7.95 per cent from its previous close of 7.99 per cent, while its price closed higher at Rs 101.26 from Rs 101 on Tuesday.

The bond market was closed on Wednesday and will remain closed on Friday also.

Bond prices and yields are inversely co-related.

“With the yields ending lower — below 8 per cent —- banks will not suffer huge mark-to-market losses as the losses from Tuesday would have been recovered,” said a treasury head with a public sector bank.

According to the official, most public sector banks are holding G-Sec stocks in the available-for-sale bucket as they expected yields to fall. However, yields had risen during the quarter, which would have required them to provide for losses due to fall in prices. However, with yields thawing on the last day of the month, banks are saved from huge investment loss provisioning.

Ashish Parthasarthy, Head of Treasury, HDFC Bank said, “Bond markets will continue to remain under pressure. Current benchmark bond’s yields may go up and could touch 8 per cent levels with new auctions taking place in April increasing the supply.”

The yields have already moved up by 30 basis points since the RBI policy on March 19. In addition, selling pressure from mutual funds and private banks are leading to a rise in the yields.

Further, amid political uncertainty and the Reserve Bank of India’s hawkish stance on limited room on cut in the policy rates, we see the bond yields to trade around 7.80 to 8.10 per cent levels in April, the dealer said.

Call Rates

Amid month-end demand for funds, the call rates ended sharply higher at 17 per cent from its previous close of 7.80 per cent. Intra-day, the call money market moved in the broad range of 8.90 to 18 per cent range.

>beena.parmar@thehindu.co.in

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