August affairs

The yield on the 10-year benchmark government security (G-sec; 7.10% GS 2034) closed August at 6.86%, down 6 basis points (bps) from the previous month’s close of 6.92% and below CRISIL’s forecast range of 6.88-6.98%.

Domestic bond prices started the month with a positive bias, tracking a sharp fall in US Treasury yields amid weakerthan-expected US non-farm payrolls data and fears about a US recession. However, US Treasury yields surged as the fears subsided, weighed on domestic bonds. The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) kept its policy rates unchanged for the ninth consecutive time in its August policy meeting. Further, liquidity in the system remained in surplus at Rs 1.46-2.86 lakh crore, prompting the central bank to conduct multiple variable-rate reverse repo (VRRR) auctions to manage the surplus. The yield on the 10-year benchmark government security (G-sec; 7.10% GS 2034) closed the week down 4 basis points (bps) at 6.88%.

During the second week, domestic bonds traded in a narrow range as traders avoided aggressive bets amid a raft of economic data releases from India and the US, including CPI, India WPI and US PPI. The 10-year US Treasury yield eased 5 bps to close the week at 3.89%, following softer-than-expected US producer price inflation data for July 2024. The cut-offs at the RBI’s weekly gilt auction were as expected and failed to lend fresh direction. Yield on the 10-year benchmark G-sec (7.10% GS 2034) closed the week at 6.87%, down 1 bp from the previous week.

During the second half of the month, domestic bonds traded in a narrow price range amid lack of firm domestic as well as global cues. Liquidity surplus continued and the RBI conducted multiple VRRR auctions. The yield on the 10-year benchmark government security closed the month at 6.86%, 6 bps down from its previous close of 6.92%

In its third bi-monthly meet for this fiscal, as mentioned above, the MPC kept its policy rate unchanged at 6.50%. The RBI Minutes of the Monetary Policy Committee Meeting were broadly in line with market expectations, wherein RBI maintained status quo, flagging concerns over food inflation.