Money Market: Bond yield hits near 7-month low amid RBI’s OMO push

By: and |
Mumbai | Updated: November 29, 2018 1:51:02 AM

The yield on the benchmark bond fell 9 basis points (bps) to hit a near seven-month low of 7.64% on Wednesday, a day after the Reserve Bank of India announced an additional Rs 40,000 crore of open market operation (OMO) purchases in December.

Bond yield hits near 7-mth low amid RBI’s OMO push (Reuters)

The yield on the benchmark bond fell 9 basis points (bps) to hit a near seven-month low of 7.64% on Wednesday, a day after the Reserve Bank of India announced an additional Rs 40,000 crore of open market operation (OMO) purchases in December. The 10-year bond yield had closed at 7.73% on Tuesday.

The RBI undertook OMO purchases to the tune of Rs 8,000 crore on November 22, taking the total OMO purchases in November to Rs 40,000 crore. Out of Rs 1,28,660-crore OMO purchases undertaken this fiscal, the preceding three months has witnessed OMO purchase to the tune of Rs 98,010 crore.

Money market experts said yields at the short end — across treasuries, commercial paper (CP) and certificates of deposits (CD) — have declined 25-50 bps in November after increasing 20-25 bps in the previous month.

Meanwhile, the average liquidity deficit during the week ended November 22 continued to be at Rs 1.11 lakh crore. Experts at Kotak Institutional Equities commented, “We expect liquidity conditions to remain tight in the rest of FY19 on the back of currency in circulation (CIC) leakage, build-up of CRR and build-up of cash balance amid calibrated government spending to adhere to fiscal targets”.

Banking system liquidity in recent weeks has been pressured by the continued intervention in the forex market to stem the rupee depreciation and a mismatch in the assets and liabilities of NBFCs.

Also, while the lesser-rated non-banking financial companies (NBFCs) have found it harder to access funds in the money markets, a big chunk of the rollovers of commercial paper (CP) issued by NBFCs – pegged at Rs 1.5 lakh crore for November – are understood to have gone through smoothly. Moreover, credit off take by the NBFC sector saw a notable increase in September.

The cost of borrowings for corporates in the bond markets has been rising in recent months as reflected in the increase in yields.

According to analysts at CARE Ratings, there has been a notable increase in secondary markets yields of corporate bonds since November 2017. They explained the average corporate bond yields – across maturities – have risen to a near two-and-half-year high of 9.20% in October.

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Rupee rises 17 paise to 70.62

The rupee strengthened by 17 paise to close at 70.62 against the US currency on Wednesday as global crude oil prices slipped below the $60-per-barrel mark amid a smart recovery in domestic equity markets. Forex dealers said the greenback’s weakness against some currencies overseas also aided the domestic currency.

At the Interbank Foreign Exchange (Forex), the rupee opened lower at 70.88, but soon recovered the lost ground and touched a high of 70.58.

The domestic unit, however, pared some gains and settled the day up by 17 paise at 70.62 against the US dollar. The rupee had recovered by 8 paise to close at 70.79 against the US dollar on Tuesday.

Forex dealers said bullish trend in the equity market as well as easing crude oil prices also supported the rupee’s upward movement.

“The rupee resumed its uptrend ahead of the important G20 meeting scheduled during this weekend. Further move in the Indian currency is also dependent on the crucial data and events like domestic GDP and fiscal deficit, US GDP and FOMC minutes, scheduled on November 30,” said VK Sharma, Head PCG & Capital Markets Group, HDFC Securities.
Globally, Brent crude, the international benchmark, was trading 0.53% down at $59.89 per barrel.

The BSE Sensex rose for the third straight session on Wednesday, gaining over 200 points on short-covering ahead of November derivatives expiry and positive global cues. In similar movement, the broader NSE Nifty reclaimed the 10,700-level.

Meanwhile, on net basis, foreign funds bought shares worth Rs 811.52 crore, while DIIs purchased share to the tune of Rs 31.21 crore on Tuesday, provisional data showed.
“Speculation may have triggered a currency fall,” SBI research said in its report, SBI Ecowrap adding that “relentless increase in crude prices since July did increase speculative activities in foreign exchange market that may have been avoided through vaguely right/ proactive measures”.

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