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Sunday, December 25, 2011

Yields on govt bonds likely to ease this week

Yields on government securities are expected to ease in the coming week and will hover in the range of 8.3 per cent to 8.35 per cent for 10-year benchmark bonds, treasury officials of various banks have said.

“Yields are likely to be in the range of 8.3-8.35 per cent for the 10-year benchmark bonds this week, as liquidity issues are being addressed by the central bank through open market operations (OMOs),” Indian Overseas Bank General Manager (Treasury), Mr T.S. Srinivasan, told PTI.

On Friday, yields on the 10-year benchmark bond closed at 8.36 per cent, one basis point lower in comparison to the previous week.

OMOs, which are conducted by the RBI to infuse liquidity into the system through the buy-back of government securities, have been conducted frequently by the central bank in the last one month to ease pressure on the liquidity front.

The central bank has infused around Rs 33,300 crore into the system through OMOs in the last one month and is likely to infuse more in the future.

Mr Srinivasan further said that government spending would accelerate from January as the Budget nears, making the liquidity situation comfortable.

It is usually seen that departmental spending by various government agencies speeds up from January to expend money allocated in the Budget for the fiscal. Mr Srinivasan said the possibility of the government pledging some of its holdings in private companies to borrow more, as suggested by reports, would support this trend.

“There are reports suggesting that the government may pledge its holding in some of the private companies to borrow around Rs 50,000 crore from the market. If that happens, pressure on yields will further ease,” he said.

Earlier, market participants had anticipated that if government borrowing increases, yield rates will harden due to oversupply.

Another treasury official echoed a similar sentiment about the yields on government bonds.

“It should flatten out as the central bank is infusing liquidity through open market operations. Also, the regulations allowing a higher FII limit and some of the other measures should help in easing of the yields,” Corporation Bank General Manager (Treasury), Mr P. Rajaram Karanth, said, adding that yields on the 10-year G-Secs will be around 8.33 per cent next week.

He also said liquidity that has gone out of the system due to advance tax payouts would be pumped back in, which would ease the liquidity conditions going ahead.


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