The yield on the 10-year benchmark bond hardened a bit which dealers attributed to the Reserve Bank of India (RBI) refraining from signaling the end of the rate-hiking cycle or changing the policy stance to neutral.
The 10-year government bonds at 7.26 percent in 2032 rose more than 3 basis points after the monetary policy announcement and ended at 7.3435 percent. Whereas the new 10-year benchmark bond 7.26 percent in 2033 ended at 7.3041 percent.
The RBI in the monetary policy meeting hiked the repo rate by 25 basis points to 6.50 percent.
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The MPC also decided by a majority of 4 out of 6 members to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.
“Benchmark 10-year government bond yield hardened a bit as the RBI governor refrained from signalling the end of the rate-hiking cycle or changing the policy stance to neutral. That apart, we believe that with today’s hike, RBI is close to its terminal policy rate,” said Dhawal Dalal, CIO - Of fixed Income, Edelweiss Asset Management.
The bond yields have moved in a narrow range throughout the day between 7.29 percent and 7.35 percent on the benchmark bond.
Further, Mahendra Jajoo, CIO, Fixed Income, Mirae Asset Investment Managers expects yields to remain range bound in the current band of 7.20-7.40 percent for the time being.
“Short-term rates are likely to move higher in line with adjustment in policy rates." Jajoo added.
The RBI governor in the monetary policy statement has also announced that it has decided to restore market hours for the Government Securities market to the pre-pandemic timing of 9 AM to 5 PM.
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Also, it has propose to permit the lending and borrowing of government securities, which will provide investors with an avenue to deploy their idle securities, enhance portfolio returns and facilitate wider participation.
“This measure will also add depth and liquidity to the G-sec market; aid efficient price discovery; and work towards a smooth completion of the market borrowing programme of the centre and states,” the release said.
Going ahead, market participants expect bond yields to harden in the next financial year amid the demand-supply dynamic on the long end.
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