Yield on G-Secs seen falling to 7.25%-level

Despite some hardening on Tuesday, the yield on the 10-year benchmark government security (G-Sec) is seen falling to about 7.25 per cent level, say market players.

Amid lower inflation and expectations of further interest rate cut by the Reserve Bank of India, the yield on the benchmark security — the 8.15 per cent G-Sec maturing in 2022 — fell sharply to an intra-day low of 7.30 per cent.

However, a weakening rupee and market players’ disappointment over the central bank not making an announcement for conducting open market operations (OMOs) to inject liquidity into the banking system led to the yield on the benchmark security hardening to 7.35 per cent.

The price of the G-Sec ended lower at Rs 105.21 from its previous close of Rs 105.30 on Monday. Bond prices and yields move in the opposite direction.

Beginning April, the G-Sec yields have fallen by 60 basis points to 7.35 per cent from 7.95 per cent.

“Slowing inflation has been the biggest factor in the sharp fall in the bond yields. Further, expectations of monetary easing in the June policy led to a fall in the yields,” said Ashish Parthasarthy, Head of Treasury, HDFC Bank.

The new benchmark 7.16 per cent bond, which matures in 2023, ended higher at 7.16 per cent after touching a low of 7.10 per cent on Tuesday.

According to N.S. Venkatesh, Head – Treasury, IDBI Bank, “The yield on the new benchmark may nudge lower to the 7.08 per cent levels by May 31.”

However, if the rupee falls to 56-levels due to strengthening of the dollar, it might trigger a cap on the fall in the yields,” said Ashok Gautam, Senior V-P– Global Markets, Axis Bank.

beena.parmar@thehindu.co.in

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