Salient features of RBI MPC outcomes
Ø The newly introduced Standing Deposit Facility (SDF) rate will be 25 bps below the policy rate i.e 3.75% at present. SDF will be floor of LAF corridor.
Ø The liquidity measures offered in the view of corona pandemic will be withdrawn in a gradual and non-disruptive manner from this year.
Ø Inflation is projected at 5.7% in 2022-23 while GDP growth rate has been projected at 7.2% for FY23.
Ø The present limit under Held to Maturity (HTM) category for banks has been increased from 22% to 23% of NDTL till March 31, 2023.
Impact on G-sec yields
Given higher market borrowing for FY23, higher inflation forecast and possible rate hike, g-sec yields will move up sharply at the longer end of the curve. The whole g-sec yield curve will shift up with a flattening bias.
G-sec auction cut-off
During government bond auction on 8th April, 5.74% GS 2026 cut-off yield stood at 6.42% while 6.67% GS 2035 cut-off yield stood at 7.32%. Long-term paper 6.99% GS 2051 yield came in at 7.38%. Floating Rate Bond 2028 cut-off yield stood at 5.20%.
Government bonds, SDL and OIS yield movements
Last week, 6.54% 2032 paper yield soared by 28 bps to 7.12% while 6.10% 2031 yield increased by 30 bps to 6.86%. The 5-year benchmark bond, 6.79% 2027 yield jumped by 27 bps to 6.6%. 6.64% 2035 yield rose 18 bps to 7.16%. Long-term paper, 6.99% 2051 yield decreased by 13 bps to 7.4%.
The spread of 10-year bond over 5-year bond rose to 52 bps from 51 bps in previous week. The 15-year benchmark over 10-year benchmark spread decreased to 22 bps from 30 bps while 30-year benchmark over 10-year benchmark spread decreased to 28 bps from 43 bps on weekly basis.
On weekly basis, 1-year OIS yield rose by 25 bps 4.73% while 5-year OIS yield increased by 21 bps to 6.18%.
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