Mumbai: Bond yields edged lower on Tuesday as expectations rose the Reserve Bank of India, or RBI, will absorb a large chunk of liquid bonds at its buyback auction this week.
Lower US debt yields and lingering hopes for a rate cut also boosted sentiment.
At 10:41am, the yield on the 8.24% bond maturing in 2018 was at 6.26%, below Monday’s close of 6.31%.
The yield had risen more than 100 basis points in the first two months of 2009 mainly on huge additional supply concerns.
“A higher buyback is the only thing which is keeping demand for bonds, otherwise there won’t be much interest in the market. Prices look toppish at current levels,” said Anoop Verma, associate vice president at Development Credit Bank in Mumbai.
Volume was heavy at Rs26.35 billion ($510 million) on the apex bank’s trading platform with the 2018 bond being the most traded. The yield on the 6.05% 2019 bond was largely steady at 6% compared with Monday’s close of 6.01%.
The RBI is scheduled to buy back Rs60 billion of bonds with an option to buy an additional Rs30 billion on Thursday, ahead of a Rs120 billion bond sale on Friday.
At its previous auction it bought back only Rs50 billion of bonds, Rs10 billion less than it planned to buy originally.
Dealers said they were awaiting details of bonds the central bank (RBI) would buy back. Any buyback of the 8.24% 2018 bond would attract a lot of interest as the security was widely held.
US government debt prices jumped on Monday as worries about a deepening recession and a shaky financial sector made investors favour low-risk assets, while oil hovered above $40 a barrel on Tuesday after slumping 10% overnight.