Mumbai: The 10-year bond yields rose on Monday on persisting uncertainties on the government’s borrowing plans after the size of a fourth bond auction was increased, but the move was kept in check by some bargain hunting.
The yield on the benchmark 10-year bond, which registered only 11 trades on the day, edged up to 6.58% from 6.56% on Friday, as dealers said the lack of clarity on borrowing made shorter-tenor papers more attractive.
The yield on the 6.49% 2015 bond, the most traded on the day, ended at 6.47%, below its previous close of 6.49%.
“The government may increase its auction size every week until the budget, but yields are attractive at current levels for banks’ SLR requirements,” said Piyush Wadhwa, senior vice-president at ICICI Securities Primary Dealership in Mumbai.
The statutory liquidity ratio (SLR) is the proportion of deposits banks need to hold in approved government securities, and it currently stands at 24%.
Volumes were a moderate Rs64.15 billion ($1.4 billion) on the central bank’s trading platform.
The spread between the 1-year and the 5-year swap rates steepened to 201 basis points, close to a peak of 213 basis points last week, on a view of economic revival and a rebound in policy rates.
The government will sell Rs150 billion of bonds on Thursday, raising the auction size by 25% from a scheduled Rs120 billion for the fourth consecutive week.
The government will outline its market borrowing plan for 2009-10 at its budget in early July, and the increase in auction amounts has raised some concerns that the initial gross borrowing target of Rs3.62 trillion could be increased.
“Government of India bonds are likely to trade in the 6-7% range till clarity emerges on the full year borrowing requirements,” Citigroup analysts said in a note on Monday.
Borrowing needs may not be increased if the government, having won an unexpectedly strong hand at national elections, decides to push ahead with asset sales.
On Monday, the deputy chief of the Planning Commission said on Monday said there was scope for asset sales.