MUMBAI: Indian government bond yields dropped, after opening flattish on Thursday, on reports that the Reserve Bank of India (RBI) has sought feedback from banks on settling sovereign bonds through the euroclear platform.
The benchmark 7.26% 2033 bond yield was at 7.1699% as of 10:35 a.m. IST, after ending the previous session at 7.2083%, and hitting a low of 7.1515% in the day.
“Though this is not materially new, the market is taking it positively,” a trader with a private bank said.
“There is some short covering as well, which is helping, but as the day progresses, yields should ideally reverse from the current levels.”
The RBI has sought views from bond market participants on the settlement of Indian bonds via the euroclear platform, according to at least three treasury officials, who said that such a move comes with risks.
Feedback has been sought from some private as well as foreign banks, the treasury officials said. Meanwhile, the major focus continues to remain on the central bank’s move on liquidity management.
The RBI may ask lenders to continue maintaining additional cash reserves for the next two fortnights, with some tweaks to the proportion as it seeks to keep liquidity tight amid high inflation, at least six senior treasury officials told Reuters.
In August, the RBI asked banks to hold an I-CRR of 10% on the increase in deposits between May 19 and July 28, withdrawing more than 1 trillion rupees of liquidity, and this decision would be reviewed by Friday.
While the RBI is expected to extend the move, the I-CRR could be reduced to 5%-8%, in a phased manner, from the current 10%, market participants have said.
Traders also said that with elevated US yields and oil prices, bond yields may not be able to sustain the fall.
The 10-year US yield hit 4.30% in Asian trading hours on Thursday, while the benchmark Brent crude contract continues to remain above the $90-per-barrel mark, hovering close to levels seen 10 months ago, amid supply shortage concerns.
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