Mumbai: The federal bond yields surged on Tuesday as investors pared positions after a recent rally and as concerns that additional government borrowing could tighten liquidity weighed on sentiment.
Dealers said in the near term yields were unlikely to rise much above 5.25% levels, as the market expected another round of rate cuts given the likelihood of more poor economic data.
The benchmark 10-year bond yield closed at 5.30% above the day’s low of 5.14% and Monday’s close of 5.17%.
Volumes were a high Rs136.80 billion on the RBI’s trading platform
Traders expect bonds to be rangebound in the coming days with investors seen trimming positions. Yields fell to an all-time low of 4.86% in the previous session and plummeted 254 basis points in 2008.
“In the absence of any further negative economic news, 4.95-5.10% range looks sustainable,” said Sudhir Agrawal, manager of fixed income at Tata Mutual Fund.
The RBI last week cut both its key short-term rates by 1% each. It also lowered banks’ cash reserve ratio (CRR) by 50 basis points, which is likely to infuse Rs20,000 crore into the system.
JP Morgan said in a note on Monday that if state governments manage to raise an additional Rs30,000 crore for capital expenditure as permitted in the fiscal stimulus package, also announced last week, the impact of the CRR cut on yields would be partially offset.
Traders said they were eyeing the federal government’s sale of Rs9,500 crore worth treasury bills on Wednesday. Rising global oil prices, which are around $50 a barrel, could also spell fresh concerns for bonds.