Mumbai: Encouraging results at a buyback auction pushed the federal bond yields off intraday high on Thursday, but fear of poor monsoons tripping up growth kept yields boxed in a tight range.
The yield on the most traded 7.02% 2016 bond ended at 7.11%, one basis point above its previous close of 7.10%.
The 10-year benchmark bond was not actively traded and ended at 7.18%, above its previous close of 7.11%. The bond market was shut on Wednesday for a local holiday.
Total volumes were a low Rs41.35 billion ($849 million) on the central bank’s trading platform.
Traders said the lack of trading interest in the 10-year benchmark bond during the day was because they were hoping to pick it up in the primary market at a cheaper price on Friday.
“The central bank accepted higher-than-expected amounts at the buyback auction which is encouraging and the market is slightly positive about tomorrow’s auction,” said Arvind Sampath, head of interest rates trading at Standard Chartered Bank.
The central bank bought back bonds worth Rs54.11 billion via auctions on Thursday, where it received bids totalling Rs130.59 billion for a Rs60 billion auction..
At an auction two weeks ago, it received offers worth Rs74.39 billion and accepted Rs29.58 billion worth bonds.
The government will sell Rs50 billion of 6.49% 2015 bonds, Rs50 billion of 6.90% 2019 bonds and Rs20 billion of 8.24% 2027 on Friday.
The government has so far sold Rs2.49 trillion of bonds since April of the 4.51 trillion it plans to sell in 2009-10 fiscal year and the week-on-week supply of debt has saturated investor appetite for debt and pushed yields higher.
Benchmark 10-year yields is up 193 basis points this year mainly due to supply concerns.
Adding to the problems has been the impact of poor monsoons on agriculture which comprises nearly a fifth of the economy.
HDFC Bank said the prospects of deficient monsoon may push the likelihood of rate hikes from the last quarter of 2009-10 to the first quarter of the following financial year.
It expects the 10-year benchmark bond yield to trade in the range of 7-7.25% by September 2009 and 7.5-8% by September 2010.
The benchmark five-year interest rate swap ended at 6.38/43% on Thursday, from Tuesday’s close of 6.36/41.