Bankers see bonds softening to under 9% on liquidity infusion

Yield on the 10-year government bond is likely to soften below 9 per cent on hope that Reserve Bank will conduct more open market operations to improve the liquidity condition, say bankers.

Last week, RBI Governor Raghuram Rajan had announced the central bank would purchase Rs 8,000 crore of government bonds on Monday to keep the system adequately supplied with liquidity.

The yield on the 10-year bond which crossed 9 per cent for the first time in over two months on November 11, but ended at 8.92 per cent after the Governor's comments on November 13.

"We will see bond yields falling below 9 per cent as RBI will do more open market operations," said Ramesh Singh, treasurer at Central Bank of India.

"I think there could be two more OMOs before the next monetary policy review on December 18, and one could be before the advance tax payout date on December 15," said Srinivasa Raghavan, executive vice-president (treasury) at Dhanlaxmi Bank.

The RBI's open market operations are aimed at infusing liquidity into the system through purchase of bonds from the market.

On Monday, RBI will purchase bonds worth Rs 8,000 crore in the 7.17%-2015, 7.59%-2016, 7.18%-2018 and 8.20%-2025 maturity basket.

The 10-year government bond crossed 9 per cent on November 11 after rupee fell 77 paise to end near two-month low of 63.24 against the US currency on higher dollar demand from oil importers and also on concerns over the US Federal Reserve tapering its bond purchases earlier than expected.

During the intra-day trade, the rupee had touched 63.44 on November 11.