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Bond yields drop after report says RBI may infuse more liquidity after elections

Ashish Pandey
GST collection figure in april 2019

The bond yields fell on Tuesday after a report said that Reserve Bank of India (RBI) may conduct more forex swaps and open market operations (OMOs) after elections. The benchmark 10-year government bond yield dipped by 2 basis points to 7.39 per cent after rising to 7.43 per cent earlier in the trading session on account of surging crude oil prices and US-China trade war concerns.

Bond yields and prices move in opposite directions. One basis point is one-hundredth of a percentage point.

The central bank may conduct more forex swap auctions and bond purchases after elections, news agency Reuters reported citing global brokerage Nomura. The rally in debt markets may only be sustained after Lok Sabha elections, once uncertainty on RBI policy, growth and policy continuity and fiscal policy ends, the report said.

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Even as RBI s forex swaps and open market operations (OMOs) helped to increase liquidity, various factors may continue to weigh in the next couple of months, a global brokerage also said. The cash in circulation leakage, risk to portfolio flows, non banking financial company (NBFC) rollovers may impact the liquidity position in the coming months, global news agency Reuters reported citing the report.

The central bank had announced OMOs to the tune of Rs 25,000 in April after infusing Rs 7,000 crore in the economy through $5 billion swap auction. The RBI may take further measures as liquidity is expected to remain tight going ahead, Nomura added. The situation may see improvement in the second half of the running year, the report added. The debt markets may stabilise at current levels with further announcements of OMOs, it added.

Meanwhile, the benchmark indices – Sensex and Nifty — are trading in the negative territority owing to the global weakness.