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Government securities (G-Secs) yields hardened further on Monday, with 10-year benchmark’s yield rising about 5 basis points, amid market speculation that the Reserve Bank of India may conduct open market operation (OMO) involving sale of G-Secs this week to not only to manage liquidity but also manage yields.
Yield of the 10-year benchmark paper (7.18 per cent GS 2033) rose about 5 basis points to close at 7.3893 per cent (previous close: 7.3412 per cent), with its price declining 33 paise to close at ₹98.54 (₹98.87).
While the RBI last Friday said it will conduct OMO-sales to manage liquidity, consistent with the stance of monetary policy, market players say its objective could also be to manage the G-Sec yields.
“The 10-year bond yield continued its upward journey post RBI’s decision to use OMO sales as a tool to drain out surplus liquidity. This move is aimed at maintaining tighter liquidity conditions in the system for achieving full transmission of the 250 basis points repo rate hike.
“Besides, the geopolitical tensions, which erupted last Friday in West Asia, have pushed up crude oil prices and its impact could linger on in the market,” said V Rama Chandra Reddy, Deputy General Manager (Treasury), Karur Vysya Bank.
Under pressure
In view of the aforementioned conditions, no positive triggers in the near term and the Sword of Damocles in the form of OMO sales hanging on the market, yields are unlikely to fall sharply in the near term, he added.
Gopal Tripathi, Head of Treasury and Capital Markets, Jana Small Finance Bank, observed that the RBI signalled OMO sales due to compression in the yield spread between US and Indian 10-year bonds.
“In the last one year, the spread between US and Indian 10-year bonds has compressed by more than 100 bps making Indian bonds less attractive for foreign investors.
“...The amount of OMOs desired level of liquidity and nature of paper to be sold in OMOs from duration perspective is not known to the market and it will take some time to figure that out. Till then volatility is likely to remain high in bond market,” he said.
Last Friday, yield of the benchmark 10-year paper shot up 15 bps in intraday trades to 7.36 per cent, with its price crashing by about ₹1 as RBI said it may conduct OMO-Sales.
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