BackIndia’s 10 year bonds gain; Friday’s debt sale in focus
The 10-year benchmark yield ends down 1 basis point at 8.85%, off 4 basis points from its intra-day high of 8.89%
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Mumbai: Indian government bonds rose slightly on Tuesday, fuelled by relief over the strong demand seen for state bonds earlier in the day, but broader gains were capped as investors braced for the federal debt auction later in the week.
India is set to sell ₹ 16,000 crore in bonds on Friday after the country successfully pulled off its biggest-ever debt auction of ₹ 20,000 crore last week without any devolvement.
The sale comes as cash conditions have tightened on the back of election-related withdrawals from banks, reduced government spending, and the impact from the bond auction payments for last week.
“I don’t see this bout of rally sustaining beyond 8.80% (on the 10-year bond)," said Suyash Choudhary, head of fixed income at IDFC Mutual Fund in Mumbai.
The 10-year benchmark yield ended down 1 basis point at 8.85%, off 4 bps from its intra-day high of 8.89%.
Gains came after 11 states raised ₹ 8,916 crore on Tuesday, above the minimum target of ₹ 8,416 crore.
Traders had anticipated strong demand at the auction given the redemption of state debt worth ₹ 7,710 crore on Wednesday.
A push by the Reserve Bank of India (RBI) to make pricing of state bonds more market-based has raised some concerns about potential mark-to-market losses in the sector, but officials told Reuters the central bank is discussing ways to ensure an orderly rollout.
The focus now shifts to the bond auction on Friday as cash conditions have tightened, keeping one-day call money rates high.
The overnight cash rate ended at 8.00/8.10% after rising to the day’s high of 8.80%. It had touched a high of 9.15% on Monday, its highest since 28 March.
In the overnight swaps market, the benchmark five-year rate ended unchanged at 8.43%, while the one-year rate ended 1 bp higher at 8.59%. Reuters
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