Bond yields ease ahead of RBI policy, close at 7.55%

Bond yields eased on Wednesday but were off the day’s low as uncertainty on policy moves and profit booking surfaced in late trade.

The yield on the benchmark 10-year bond ended at 7.55% after hitting 7.52% and below the previous close of 7.58%. On Friday, it had fallen to a six-week low of 7.49%.

Total volume, according to the central bank’s reporting platform, was heavy at Rs 13,550 crore ($2.9 billion).
RBI is set to review policy on Friday and a Reuters poll showed 24 out of 25 economists expected it to raise the cash reserve ratio (CRR) by up to 50 basis points and hold rates steady.

“Yields may rise by around 10 basis points if there is a rate hike. I expect the upside to be capped at 7.70% as liquidity is ample and there is no immediate supply,” said Arvind Sampath, head of interest rate trading at Standard Chartered Bank.

Yields fell on Wednesday after media reports quoted an unnamed senior central bank official as saying raising interest rates may impact industrial recovery.

Bond prices will rally and yields may touch 7.45% if RBI hikes only the CRR and keeps interest rates unchanged, dealers said.