By Anil Varma, Bloomberg
Mumbai: The fall in 10-year bonds has sent yields approach the highest in more than seven months, on concerns that a rise in borrowing costs in the money market will spur banks to sell debt to raise cash.
Bonds fell for a fourth day after the overnight call rate rose to the highest in at least six years on concern that corporate tax payments have drained lenders’ funds. Companies may have paid as much as Rs40,000 crore ($9.2 billion) in quarterly tax last week, compared to the Rs28,000 crore they are estimated to have paid in the previous quarter, according to a Bloomberg News survey.
“The spurt in short-term money market rates won’t be good for bonds,” said M. Natarajan, chief trader at IndusInd Bank Ltd in Mumbai. “Banks may sell bonds to generate cash. Also, there are no positive triggers for bonds in the short term.”
The yield on the benchmark 8.07% note due January 2017 rose by 1 basis point, that is, by 0.01%, to 8.08 % , according to RBI’s trading system. That’s the highest since August 2006. The price, which moves inversely to the yield, fell Rs0.05, or 5 paise per Rs100 face amount, to Rs99.90.
The yield may rise as high as 8.15% in the coming week, Natarajan said.
The overnight money market rate climbed to 35% today from 17% yesterday, after averaging 7.05% between 1 January and 16 March.
The shortage of funds has prompted lenders to borrow from the central bank since 16 March through the monetary authority’s daily sales of repurchase agreements to maintain the mandated cash reserves. Banks borrowed a record Rs35,000 crore from the Reserve Bank of India yesterday, up from Rs19,800 crore on 16 March.