Bond yields remain range bound opening and closing 1 basis point higher

Bond yields remained range bound on Monday, opening and closing at 8.31%, 1 basis point higher than Friday’s close, as dealers are looking forward to the auction calendar, due to be released this week.

The yields did not move considerably on Friday after RBI deputy governor Subir Gokarn’s comment that we are at the end of the rate hike cycle. This was because global developments and the possibility of a global slowdown and growth taking a hit in emerging economies prompted dealers to expect a change or softening in RBI’s policy stance already.

Bond yields fell to a low of 8.29% during the day. “We are looking forward to the auction calendar for the second-half of the year. The general expectation is that fiscal borrowing could be higher than the targeted amount. If that does not happen, we might see some rally in the yields.” said a dealer from a small private bank. Liquidity in the system remained high, as banks borrowed Rs 73,515 crore from RBI’s repo window.

According to bank treasurers, tighter liquidity was on account of the new reporting Friday. Also, higher rate on money market instruments like certificate of deposits and commercial papers have provided banks with arbitrage opportunities. The rate on one-month certificate of deposits is about 9.20%, almost 1% above the repo rate.