There has been a huge liquidity build up in the banking system on the back of year-end short-term deposit mobilisation and open market operation (OMO) purchase auction of Government Securities

The current financial year’s first auction of Government Securities, including the current benchmark 10-year paper, for an aggregate amount of ₹36,000 crore sailed through smoothly amidst ample liquidity with banks, pensions funds and insurers.

Even as the auction sailed through, the yield of the 10-year benchmark ended at a three-year low of 6.45 per cent on Friday against previous close of 6.48 per cent, driven by liquidity and rate cut hopes.

There has been a huge liquidity build up in the banking system on the back of year-end short-term deposit mobilisation and open market operation (OMO) purchase auction of Government Securities.

Liquidity has swung from an average deficit of ₹1.30 lakh crore last month to a surplus of s ₹2,16,118 crore as on April 3.

Competitive bids

At the auction of the benchmark 10-year G-Sec (6.79 per cent GS 2034), the RBI received competitive bids aggregating ₹96,821.250 crore against the notified amount of ₹30,000 crore. The central bank accepted bids for the notified amount, with the cut-off price and yield being Rs 102.10 and 6.4904%, respectively.

At the auction of the 6.64% GS 2027, the RBI received competitive bids aggregating ₹35,376 crore against the notified amount of ₹6,000 crore.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “Everyone in the market is bullish about a rate cut next week. Some are even expecting a 50 basis points rate cut to offset the effect of Trump’s tariffs on the economy. If the yield looks like it will soften to 6.25 per cent, naturally, investors will buy at the current yields.

“Even if there is no rate cut, G-Sec yields will decline because of the liquidity that is being infused via OMOs. Moreover, next month, RBI will pay the government a huge dividend, which could be more than ₹2 lakh crore.”

Mahendra Kumar Jajoo, CIO – Fixed Income, Mirae Asset Investment Managers (India), noted that the US tariffs introduced uncertainty in global trade, which could lead to volatility in commodity prices and currency movements, impacting investor sentiment.

However, India’s fixed income market remains resilient, backed by the RBI’s strong liquidity management.

“With inflation under control and a stable interest rate outlook, Indian bonds continue to offer an attractive investment opportunity. While global disruptions may create short-term noise, India’s bond market fundamentals remain strong, providing investors with stability amid external uncertainties.”

Published on April 4, 2025