Wednesday, February 12, 2025

G-Sec yields thaw on RBI’s liquidity measures, rupee down 17 paise

Must read




The rupee depreciated about 17 paise on Tuesday against the dollar amid US President Donald Trump’s threats to impose tariffs on the countries that “harm” America. The development comes even as RBI announced that it will conduct a $5-billion dollar/rupee buy/sell swap to cool down forward premia.

Yields of Government Securities (G-Secs) softened in early trades on RBI’s latest liquidity injection measures, but reversed on profit booking by State-owned banks.

The rupee closed at 86.5225 per dollar against the previous close of 86.35, with Trump’s comments weighing on market sentiments and boosting the greenback. Demand for dollars from importers, especially oil companies, also dragged the rupee.

The RBI’s move to conduct dollar/rupee buy/sell swap auction of $5 billion for a tenor of six months on January 31, 2025, softened the forward premia. The 1-year dollar-rupee forward premium came down 11 basis points to 2.17 per cent.

DeepSeek-driven fear factor

Amit Pabari, MD, CR Forex Advisors, said, “Globally, China’s DeepSeek unveiled its cost-efficient AI model, triggering a sharp decline in US tech stocks. This event fueled risk-off sentiment in financial markets, boosting demand for dollar and exerting pressure on emerging market currencies, including the rupee.”

Referring to the series of liquidity infusion measures announced by RBI, he noted that while these steps were designed to address liquidity concerns in the banking system, they effectively increased the supply of the Indian currency, further diminishing its value against the dollar.

V Rama Chandra Reddy, Head-Treasury, Karur Vysya Bank, observed that the rupee opened lower on Tuesday following the announcement of liquidity measures.

Additionally, renewed tariff warnings from President Trump provided a boost to the dollar against other currencies. Weak sentiment in the equity market, driven by continued FII selling, also weighed on the rupee.

Yield of the benchmark 10-year G-Sec (coupon rate: 6.79 per cent) softened about 5 basis points after RBI on Monday announced measures including $5 billion dollar/rupee buy/sell swap auction of six months tenor, open market operation (OMO) purchase auctions of G-Secs aggregating ₹60,000 crore and a 56-day variable repo rate(VRR) auction for a notified amount of ₹50,000 crore..

Profit booking

However, yields went up as State-owned banks reportedly booked profits. Yield of the 10-year benchmark closed at 6.69 per cent against previous close of 6.68 per cent.

Nuvama Wealth, in a report, noted that the downside in yields did not sustain, and profit booking by PSU banks was heard morning session onwards.

“With this extent of selling continuing in heavy volumes, yields went higher. This upside in yields was also in sync with paying in OIS (overnight index swap) across the curve, which weighed heavily upon markets today (with real money participants/traders liquidating their receiving positions),” per the report.

Murthy Nagarajan, Head (Fixed Income), Tata Asset Management, said the RBI’s liquidity easing measures have pushed government bond yields to a near three-year low, with expectations of a 25-basis-point repo rate cut in the February MPC meeting.

“We expect the 10-year bond yield to move towards the 6.45-6.5 per cent range by March, supported by a potential 25-bps rate cut in February, followed by another 25 bps cut in April,” he said.







Source link

More articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest article