Mumbai: The bond yields eased on Tuesday, tracking US Treasury yields as excitement over the eurozone’s mammoth rescue package gave way to doubts whether its weakest economies can deliver drastic debt cuts, reigniting demand for safe-haven assets.
The yield on the most traded 8.20% bond maturing in 2022 ended at 7.87%, down 7 basis points on the day from Monday’s 7.94%.
The yield on the new 10-year bond, the 7.80% maturing in 2020, ended at 7.61% compared with 7.68% on Monday.
Volumes were a heavy Rs151.70 billion ($3.35 billion) on the central bank’s trading platform.
“Yields have fallen sharply. I expect yields to see upward pressure tomorrow (Wednesday) as fears of rate hikes may again start if IIP is higher than expected,” said Srinivasa Raghavan, head of treasury at IDBI Gilts.
A Reuters poll of 22 economists showed that industrial output is expected to rise 15% in March from a year earlier. This is almost in line with an annual rise of 15.1% in February.
Raghavan expects the 10-year bond yield to hover within the range 7.60-7.65% on Wednesday.
The yield on the benchmark US 10-year note was at 3.491%, versus 3.543% in late New York trade on Monday.
The announcement of auction papers on Monday was in line with expectation and thereby comforted sentiment during the day.
After trading hours on Monday, the government said it would sell Rs50 billion of 7.80% bonds maturing in 2020, Rs40 billion of 7.38% 2015 and Rs30 billion of 8.28% 2032 bond on Friday.
On Monday, Indian bonds saw a sharp sell-off as the $1 trillion rescue package for the eurozone led to return of risk appetite on a knee-jerk reaction.
“Market sentiment is quite shaky. A lot will depend on how US treasuries behave overnight,” said another dealer at a foreign bank on the bonds market outlook on Wednesday.
In interest-rate futures on the National Stock Exchange, the June contract implied a yield of 8.2122% while the September contract was not traded.
The benchmark five-year interest rate swap ended at 6.64/67% from its previous close of 6.70/73%.