QE3 aftermath: Would yields continue to remain rangebound?

There was a slight rise in bond yield yesterday after a disillusionment of rate cut. The Reserve Bank refrained from a slash in repurchase rate whereas the cash reserve ratio (CRR) was slashed by 25 basis points. The chart depicts that from past two months the yield on 10-year government security has been hovering in a tight range of 8.05% and 8.26%.

The CRR cut is action taken by the Central Bank to ease liquidity. With Fed and ECB opening doors for monetary easing it is anticipated that the investors would explore the market with higher yields. This has led to the emerging market bonds a sizzling pick among investors. Thus the FII investments in the bond market are likely to grow. On the anticipation of foreign investors demand for government bonds the local investors are likely to gear up their share of investments. However the new liquidity introduced via QE3 has given a big boost to the ongoing risk appetite and have boosted the demand for stocks & commodities and as it’s widely known that in a scenario of risk appetite bonds are the last in priority of investors hence our bond yields are likely to continue in range bound fashion in near term.

The below graph display the movement in benchmark 10 year bond yield

 

 

 

 

 

 

 

 

 

 

 

 

 

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