MUMBAI: The yield on the benchmark 10-year government security collided with 7% on Wednesday, the least in north of a year. In addition, the rupee gained against the dollar, which lost against other currencies on the international market. The rupee gained five paise to 81.83 at the close, up from 81.88 on Tuesday. Dealers stated that the RBI's purchase of dollars through public sector banks would have benefited the domestic currency more.
In G-secs, HDFC Bank, which is building its portfolio of government bonds in preparation for the merger with parent HDFC, purchased a significant amount of the 10-year bond (7.26 percent 2033). The bank must still meet the reserve requirement after the merger, according to the RBI.
As part of their statutory liquidity ratio (SLR) requirement, banks must keep 18% of their deposits in government bonds. HDFC Bank is currently exempt from this rule, and following the merger, HDFC Bank will be required to maintain SLR on its expanded liabilities.
The rumor that the US Federal Reserve might put an end to its rate hikes was another factor in the decline in the yield on the 10-year bond. Because the RBI was purchasing dollars and releasing liquidity into the banking system, the crash of the dollar also helped ease yields. Banks may realize treasury profits in the first quarter if yields remain low.