Monday, November 29, 2010 10:53 Hrs IST
We Expect Benchmark 10 Yr Yield To Remain Range Bound In The Near Term
DSP BlackRock Mutual Fund - Mid-Monthly Fixed Income Market Review & Outlook
The Benchmark 10 Yr government bond yield moved down from 8.13% pa in the beginning of the month to 8.01% pa as on 24 November 2010 on expectation of FII limit auction amid low trading volume.
Money market yields continued to harden driven by the tightness in liquidity. 3M Bank CD yield has moved from 7.85% pa to 8.23% pa month to date while the 12M Bank CD yield has moved from approx. 8.55% pa to 8.77% pa during the same period.
The liquidity in the system continues to remain tight and is on average Rs. 1,00,000 crore in deficit.
Bond market participants are cautious amid worsening liquidity conditions and rigid headline inflation. Bond market is also adjusting to recent monetary steps taken by China and South Korea and developments in the European bond market. We expect benchmark 10 Yr yield to remain range bound in the near term. Current tightness in systemic liquidity has resulted in higher SLR maintenance by the banking system. We are keenly watching price movements of certain commodities in response to QE2 to get further cues on RBI's next move.