Bonds jump to 8-month high amid more liquidity hopes

Mumbai | Published: December 13, 2018 2:25:15 AM

The money markets are breathing easier after the rollover and refinancing of some Rs 1.5 lakh crore of ommercial papers issued by NBFCs.

economy, liquidity, bondsThe average liquidity deficit for the week ended December 7 was at a seven-week low of Rs 27,492 crore, a notable easing.

By Sashank Nayar

The yield on the benchmark bond, or the 10-year government securities (G-Secs), ended at an eight-month low of 7.41% on Wednesday, 12 bps lower than the previous close of 7.53% on Tuesday.

Dealers said with the feud between the Reserve Bank of India (RBI) and the government having been ended with the appointment of a new governor, there was the promise of more liquidity measures being rolled out soon. The money markets are also breathing easier after the rollover and refinancing of some Rs 1.5 lakh crore of commercial papers (CP) that had been issued by non-banking financial companies (NBFCs).

The RBI’s liquidity adjustment facility (LAF) on Wednesday saw transactions of Rs 9,092 crore. They were Rs 20,137 crore on Tuesday and Rs 11,596 crore at the start of the week on December 10.

The average liquidity deficit for the week ended December 7 was at a seven-week low of Rs 27,492 crore, a notable easing.

Although the banking system continues to be in deficit for the ninth consecutive week, the situating has been moderating for the past three weeks, according to CARE Ratings. The moderation in liquidity deficit can be attributed to the RBI’s liquidity infusion through open market operations (OMO) purchases.

The central bank conducted OMOs worth Rs 40,000 crore in October and November and has done OMOs worth Rs 20,000 crore in December so far of the planned Rs 40,000 crore, according to an RBI release.

Bank credit has been picking up pace and grew at 15.1% year-on-year in the fortnight ended November 23. On the other hand, deposit growth over the past many months has been rising slowly – in the fortnight to November 23, it grew at 9.4%. As a consequence, banks have been raising both deposit rates and loan rates. “The lower deposit growth amid higher credit growth has been a factor contributing to the liquidity constraints in the banking system”, say experts at CARE Ratings.

Barring the week ended October 8 and December 3, the banking system liquidity was in deficit since September 11.

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