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The initial cheer about the larger-than-expected 50 basis points repo rate cut gave way to disappointment in the Government Securities (G-Secs) market on Friday, as the RBI’s rate-setting panel announced a change in monetary policy stance from “accommodative” to “neutral”.
Yield of the new 10-year benchmark G-Sec (6.33 per cent GS2035) hardened to close about 5 basis points higher at 6.2373 per cent, against the previous close of 6.19 per cent.
Opening at 6.1965 per cent yield against previous close of 6.19 per cent, the 10-year G-Sec tested an intraday low of 6.1060 per cent after the surprise 50 basis point repo rate cut announcement.
However, following the change in monetary policy stance, this security gave up gains, with the yield rising to an intraday high of 6.2405 per cent.
“With today’s actions, the Repo rate at 5.50 per cent has likely bottomed out. However, the presence of abundant liquidity means the Standing Deposit Facility will continue to act as the operative policy rate, guiding short-term money market behaviour.
“The stance change from “accommodative” to “neutral” is the biggest dampener, especially for long-end G-secs,” said V Rama Chandra Reddy, Head-Treasury, Karur Vysya Bank.
The 10-year benchmark bond yield is expected to trade in the range of 6.10 per cent to 6.25 per cent, factoring in the liquidity support and neutral stance, he added.
Avnish Jain, Head Fixed Income, Canara Robeco AMC, observed that the G-Sec market gyrated.
He observed that the RBI Governor further announced 100 bps CRR cut, which again led to partial recovery in markets.
However, going forward, market yields may be range bound, as liquidity continues to remain ample and post 50bps rate cut, overnight rate may hover around 5.20-5.3 per cent range (bottom end of the Liquidity Adjustment Facility corridor).
Global cues
Jain said markets may now be driven more by global cues with an eye on the US trade policy. In the short term, 10Y yield may hover between 6.20-6.35 per cent range.
Nuvama Wealth, in a report, observed that the 10-year (old) benchmark (6.79 GS 2034) opened little changed at 6.25 per cent ahead of the MPC meeting outcome. It closed at 6.29 per cent.
“Yields fell quickly after the RBI announced a repo rate cut by 50 bps (as against market expectations of a 25-bps easing).
“However, moves lower in yields did not sustain, and started to reverse after the MPC changed the policy stance from accommodative to neutral, indicating very limited room for further easing ahead,” per the report..
Referring to the 100 bps CRR cut in four equal tranches starting September fortnight, Nuvama officials said this allowed the near end of the curve to fall faster.
In the post policy conference, governor stressed upon better and faster transmission, while also hinting at an extended pause, they added.
Published on June 6, 2025