Bonds muted; yields could ease further

RBI cut the repo rate to 7.75% with immediate effect and CRR to 4% with effect from February 9 at the third-quarter policy review on Tuesday. While the bond market gave a rather muted reaction to the policy outcome as a 25 bps repo rate cut was expected, more steam is still left in the bond rally, dealers said. The 10-year benchmark bond yield slipped 6 bps from the day's high after the announcement of the cuts and yields could ease more in the coming weeks.

“The policy is very positive for the markets and the tone was more dovish than expected. I would expect bond yields to go down,” said P Mukherjee, head of treasury at Axis Bank.

Dealers said besides the surprise CRR cut, the tone of the policy statement was softer and the inflation projection was lowered as well. By March-end, RBI expects inflation to be 6.8%, less than 7.5% it projected earlier.

On back of these, some traders expect another rate cut in March and the yield on the benchmark 10-year 8.15%, 2022 bond could fall to 7.75% on such hopes.

Mukherjee of Axis Bank expects repo rate to be cut by another 25 bps cut in March.

However, given the fact that the government will borrow close

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