The yield on the benchmark bond rose seven basis points on Monday to close to 6.88% with dealers attributing the spike to the announcements of OMOs last week, the rise in US bond yields and also alleged comments by a senior Reserve Bank of India (RBI) official. This is also the highest one-day rise in the yield since September 21. The yields, which were relatively stable during the morning, rose in the afternoon. Bond market traders said the sales of bonds may have been prompted by alleged comments made by RBI deputy governor Viral Acharya at a conference organised by a foreign bank. Acharya is understood to have observed that real interest rates are fair and banks could be expected to reduce their excess statutory liquidity ratio (SLR) so as to use the funds to lend.
FE could not immediately get a confirmation from the RBI and relied on bond market sources. The conference or meeting was attended by participants from the mutual funds and insurance sector. On an average, banks are maintaining an SLR close to 24% against the required 19.5%. One of the factors that might have led to the offloading of bonds could be uncertainty, said a fixed-income expert. The deputy governor is believed to have said there was a need to see low inflation for a longer period. Acharya is understood to have indicated there could be a review of the bond limits for foreign portfolio investors (FPI) in April. Dealers said the RBI is in favour of long term investors.
The RBI had recently separated the masala bonds from the FPI limit—thereby freeing up `44,001 crore of investment limits for FPIs in corporate bonds. The deputy governor is also believed to have indicated that he doesn’t expect any negative (sovereign) rating from ratings agencies. One mutual fund expert pointed out that contrary to the belief that mutual funds were the sellers of bonds, the segment was net long on G-secs on Monday. “I think primary dealers were sellers. Overall, mutual funds were buyers of central government securities,” said the experts.
