Mumbai: Bond yields rose on Monday, pushed higher by the prospect of heavy supplies, rising global debt yields, higher commodity prices and positive corporate earnings news.
However, dealers said expectations the Reserve Bank of India (RBI) would hold a buyback auction this week, in line with its purchases on alternate weeks, stemmed the rise.
The yield on the most traded 7.94% 2021 bond ended at 7.28%, above its previous closing of 7.19%.
The 6.90% 2019 bond closed at 6.92%, above Friday’s close of 6.85%. There were no deals in the benchmark 10-year bond.
Volumes were a heavy Rs79.95 billion ($1.7 bln) on the RBI’s trading platform.
Overnight indexed five-year swap rates widened to 6.34/6.38% from Friday’s close of 6.16/6.21%.
The spread between 1 and 10-year government bonds widened to a new high of 311 basis points.
“Bonds reacted to higher offshore yields and commodity prices. The market was also long on bonds after the auction on Friday and more supplies are expected this week,” said Vineet Malik, head of interest rates at HSBC India.
The RBI will sell Rs63 billion of state development loans on Tuesday, Rs95 billion of treasury bills on Wednesday and Rs120 billion of bonds on Friday.
Under a revised borrowing schedule, the government will sell Rs1.1 trillion of bonds up to September. Weekly auction sizes will be Rs120 billion in July and August, and smaller in September.
However, the RBI has said it will ensure there is ample liquidity in the banking system and will keep buying bonds from the market through open market operations.
US Treasury yields rose in Europe on Monday as equity markets rose on news of an 11th-hour, $3 billion deal to rescue ailing US lender CIT Group Inc.
Oil rose a dollar to above $64 a barrel on Monday, reaching the highest in almost two weeks, as equities firmed and the dollar fell on hopes of a global economic recovery.