The long-term bond yields have come down by about 20 basis points since the first OMO was announced last month. The idea is to bring down long-term yields, so that transmission happens and possibly help the government borrow at a cheaper rate.
But the drop in yields have also helped some investors to get out of their bond portfolio as the scope for future rate cuts seem limited for the central bank. But foreign portfolio investors remained fairly bullish on government bonds, indicated by them using up 74.08 per cent of their allotted limits for such bonds.
Meanwhile, the central bank also conducted a 70-day cash management bill (CMB) auction, in which it moped out Rs 30,000 crore of liquidity from the banking system. The CMBs are issued to meet temporary cash need of the government, and is also an effective tool for removing liquidity.
The banking system liquidity had crossed Rs 4 trillion on bond redemption and government spending.