Mumbai: Bond yields fell on Wednesday after the Reserve Bank of India (RBI) announced a bond buyback, but uncertainties on the government’s borrowing plan and a hazy interest rate outlook kept them off one-week lows.
At 10:33 am, the 10-year benchmark bond yield was at 6.62% after dropping to 6.60%, which was its lowest since 27 May. It had ended at 6.65% on Tuesday.
Volumes were moderate at Rs27.35 billion ($584 million) on the central bank’s (RBI) trading platform.
“The present situation is likely to continue until the pre-budget meeting between the state-run bank chiefs and the central bank. The market will take cues from its outcome,” said a senior trader at a state-controlled bank.
“The borrowing plan will also depend largely on how fast the government is able to disinvest its stake in public enterprises,” he said.
India will let state-run firms sell equity stakes and dilute a small portion of government holdings, but there are no plans for big-ticket disinvestments in the near future, a senior ministry official said on Tuesday.
Stake sales in state firms could help the government cover a large budget deficit, which widened to 6.2% of gross domestic product for the 2008-09 fiscal year, more than double the initial estimate of 2.5%.
After market hours on Tuesday, the central bank said it would buy back Rs60 billion of bonds on Thursday.
The government had earlier raised the size of Friday’s bond sale to Rs150 billion from a scheduled Rs120 billion.
“We just can’t have a situation where the market is trading in the blind and doesn’t know how much supply is coming,” said a trader at STCI Primary Dealership.
The central bank is scheduled to auction Rs55 billion of treasury bills on Wednesday.