Bond yields likely to soften further in Q4

Yield on the most liquid 10-year benchmark government bonds is likely to soften further in the next quarter due to a possible monetary easing by the central bank, says an expert.

"The bond yield is likely to soften in the fourth quarter on the back of possible rate cut. The 10-year G-Secs, which is hovering around 8.19-8.20 level now, should fall to 8.10-8.15 level during this period," IDBI Bank treasury Head N S Venkatesh said.

The 10-year bond was trading around 8.19 level on Monday after Friday's close at 8.20 per cent.

On the impact of reduction in cash reserve ratio (CRR) on bond yields, Venkatesh said as the money has come to the system only from November 3, it would take some time to get reflected on the yield.

After witnessing comfortable liquidity situation in September, the overnight borrowing by banks has shot up to over Rs 1 trillion in recent weeks. One per cent of net demand and time liabilities' (around Rs 60,000 crore) is the comfortable level for RBI as far as liquidity is concerned.

To address the issue of liquidity crunch, the apex bank had cut the CRR by 0.25 per cent to 4.25 per cent to infuse additional liquidity of Rs 17,500 crore in its half-yearly monetary policy review last Tuesday.

Another treasury official of a mid-sized public sector bank said the expectation about conducting of open market operations would also help ease the yield on government bonds.