On Tuesday, Indian bond yields plunged to a four-year low of 5.99%, lowest since September 2004, as there were wide expectations of further rate cuts. The 10-year benchmark paper ended at 5.99%, lowest since September 2004, below Monday?s close of 6.17%. The bond yields have fallen by 108 basis points, so far, in December.
The US Federal Reserve is expected to lower its key rate close to zero at 0.5% during the policy review on Tuesday. ?There are expectations in a Fed rate-cut of about 50-75 basis points. Bond yields could touch 5.90 levels on Wednesday, following the cut,? said a primary dealer. On Tuesday, volumes were at a high of around Rs 19,000 crore, with 10-year bonds being actively traded on the central bank?s electronic platform, noted dealers.
There are also expectations of a rate cut in India after the data showed factory output declined in annual terms for the first time in more than 13 years in October.
The central bank had slashed the key interest rates by a good 100 basis points each, early this month, in a bid to protect the economy from global crisis. Meanwhile, advance tax outflows is expected to suck out Rs 20,000-30,000 crore from the banking system, which may put pressure on yields, but not considerably, noted dealers.
?There could be a temporary liquidity squeeze, but not a massive one,? said the dealer. However, the call rates ended up on Tuesday, on account of advance tax outflows, but market players feel liquidity is comfortable.
On Tuesday, call rates ended at 6.40/6.50%, higher than 6/6.10% on Monday. The weighted average rate in the call money market was 6.51%, while in the CBLO market, the rate was 5.17%, according to data from the Clearing Corp of India (CCIL).