Bond yields dropped to a six-month low on Tuesday to close at 7.36% on expectations that there would not be a hike in the domestic interest rates, owing to the Greek crises.
The 10-year yields, which were hovering around 8% a month back, have fallen by 32 bps in the last fortnight. The money market believes that the 3G auctions will not lead to a liquidity crunch in the banking system, which led to bond yields trade lower. The 10-year benchmark yield, 7.80% bond maturing in 2020 ended at 7.40% on Monday.
Bankers are of the view that as indicated by finance secretary Ashok Chawla, the total government programme will fall after heavy inflow of funds?over Rs 67,000 crore?out of the 3G auction .
Union Bank of India executive director S Raman said the equity markets all over the world have fallen by 3%. Being a part of it, the government bond yields were also affected. ?Though banks are gearing up for the auction payment , it wouldn’t lead to a liquidity crisis in the system. I strongly believe that the hidden liquidity is still there,? he said.
RVS Sridhar, president and head of markets at Axis Bank, said, ?We are not expecting an immediate hike in the interest rates as of now. Liquidity will be managed comfortably even after the 3G auctions.?
The amount of money deployed with the central bank?s daily reverse repurchase auctions are down to Rs 6,720 crore on Tuesday as against Rs 35, 5760 crore a fortnight ago.
Sridhar believes that the advance tax outflows, which will take place in mid June, is likely to put some pressure on the liquidity position but that may not have a major impact on the same.
?Short-term funding could be affected slightly with the advance tax outflows taking out liquidity from the system, but that will be temporary,? he observed.
The advance tax outflows are likely to suck out close to Rs 30,000-35,000 crore from the banking system.
Moses Harding, head of Global Markets Group at IndusInd Bank, observed there is comfort from the Reserve Bank of India (RBI) to prevent volatility in money market on cash outflow from 3G auction and advance tax payments.
Harding expects the 10-year bond yields to touch 7.25% in the short term.
?The good comfort on soft-landing of inflation and growth pressures driven by global cues will add momentum to this move,? he added.
Earlier, RBI governor D Subbarao noted that the central bank is monitoring the liquidity in the banking system after the sale of high-speed phone services.
