Benchmark Gsec yield eases on demand ahead of new LCR rules

Indian 10-year benchmark yield retreated to 6.932% on Tuesday due to demand from domestic banks as the Reserve Bank of India (RBI) proposed tightening of the liquidity coverage ratio guidelines for lenders.

The 10-year government bond yields had eased even further intraday to 6.908%, the lowest since April 2022, LSEG data showed.

The RBI has proposed to tighten norms related to the liquidity coverage ratio (LCR) by increasing the run-off factor for retail deposits last week. LCR refers to a stock of high-quality liquid assets (HQLA), primarily government securities, that banks must maintain to tide over a hypothetical 30-day stress scenario in which outflows occur.


"With new guidelines on LCR, which is likely to come from next fiscal year, banking industry liquidity level will be impacted to the extent of 12% to 18% which will create demand for bonds as they are HQLAs," said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank, predicting a range of 6.85%-6.95% on the 10-year bond yield over the near term. "The yield trajectory is likely to go down, but it will be very gradual, the range is quite narrow."