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senior Vice-President for Treasury Advisory Group
at HDFC Bank. Excerpts:-
ET Now: Can you explain in simple terms what RBI has done and what does it mean for the bond market?
Bhaskar Panda: What RBI has done is, it is going to take away liquidity from the 10-year bucket and put that in the near-term buckets. So basically what it is trying to do is reduce the duration. It is liquidity neutral. At the same time, RBI is trying to reduce the deviation, and that is the reason why the impact has already come in the 10-year bond yields.
ET Now: Do you think this is a knee-jerk reaction or do you expect yields to become stable around these levels?
Bhaskar Panda: Depends. If no more of this is coming, then yields will probably be around these levels. However, I do not think it will be a one-off thing; probably some more of it would be coming. If that happens, you will see yields go towards 6.5 per cent versus 10-year yields going towards 6.45-6.50. And then, maybe, it will remain there for some time.
ET Now: In terms of size, it may not be that big. But it is probably the first move that has come in. Do you expect more such things?
Bhaskar Panda: I do. I think this is first of a few, which is why the move has got people off-guard, and therefore you have seen this gap. Going forward, it will not happen. It will slowly move towards maybe 6.45-6.50.
ET Now: Since RBI policy, bond yields had hardened by about 25-30 bps. What was the signal the market had got till yesterday and what is the signal from this OMO?
Bhaskar Panda: After the RBI policy, and since we all knew retail inflation is higher, the market took that as a cue to move up on bond yields. But after RBI’s OMO announcement, they are now scaling down those expectations. They are bringing their expectations towards the lower part of the yield. So, maybe, it is a knee-jerk reaction, just because they were not prepared for it. But since it has come, we have to adjust to the new reality.
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