MUMBAI: The yield on the benchmark 10-year government bond crashed to 7% on Wednesday, the lowest in over a year. The rupee also strengthened against the dollar, which weakened against other currencies in the global market. The rupee closed at 81.83, up five paise from Tuesday’s close of 81.88. Dealers said that the domestic unit would have gained more had it not been for RBI’s purchase of dollars through public sector banks.
In G-secs, there was a large buying of the 10-year bond (7.26% 2033) by HDFC Bank, which is building its portfolio of government bonds ahead of the merger with parent HDFC. The RBI has not exempted the bank from meeting the reserve requirement after merger.
Banks are required to maintain 18% of their deposits in government bonds as part of their statutory liquidity ratio (SLR) requirement. Currently, HDFC is not subject to this rule, and post-merger HDFC Bank will have to maintain SLR on its expanded liabilities.
The other reason for the yield on the 10-year bond to fall was speculation that the US Fed might pause its rate hikes. The dollar crash also helped ease yields as the RBI was purchasing dollars and releasing liquidity into the banking system. If yields remain low, banks could end up with treasury profits in the first quarter.
In G-secs, there was a large buying of the 10-year bond (7.26% 2033) by HDFC Bank, which is building its portfolio of government bonds ahead of the merger with parent HDFC. The RBI has not exempted the bank from meeting the reserve requirement after merger.
Banks are required to maintain 18% of their deposits in government bonds as part of their statutory liquidity ratio (SLR) requirement. Currently, HDFC is not subject to this rule, and post-merger HDFC Bank will have to maintain SLR on its expanded liabilities.
The other reason for the yield on the 10-year bond to fall was speculation that the US Fed might pause its rate hikes. The dollar crash also helped ease yields as the RBI was purchasing dollars and releasing liquidity into the banking system. If yields remain low, banks could end up with treasury profits in the first quarter.
