Macro and Government Bond Commentary: Yields rise on weak auction results, liquidity deficit widens ahead of GST outflows • 10Y benchmark (6.79 GS 2034) opened little changed at 6.74% despite a fall in treasury yields overnight (given weaker US retail sales and rise in weekly jobless claims). Yields edged higher early in the afternoon, with auction cutoffs said to be weaker than expected. The 10Y point closed trade at 6.76% on the day. • Weekly auction results: RBI sold 6.75 GS 2029 at INR 140bn for 6.73%, 6.92% GS 2039 at 6.89% for INR 120bn, and 7.09% GS 2054 for INR 100bn. • RBI overnight VRR auction result: The RBI accepted bids for INR 334.67bn (against INR 500bn notified) at 6.52%. The central bank will conduct daily VRR of INR 1.25tn on 20th Jan to manage outflows from monthly GST payments. • As on 16th Jan, system liquidity deficit was INR 2.3tn (without adjusting for daily CRR imbalances). Conditions will tighten further early next week on account of GST outflows.
