Mumbai: Bond yields eased from five-week highs after an auction of Rs150 billion of government bonds ($3.2 billion) went better than expected on Friday, but the prospect of heavy further supplies kept sentiment defensive.
The 10-year benchmark bond yield ended at 6.48%, up five basis points from its previous close of 6.43%. It rose to 6.50% during trade, its highest since 16 April.
Friday’s rise meant the yield ended the week up 6 basis points, and took its rise this month to 25 basis points.
Srinivasa Raghavan, treasury head at IDBI Gilts, said the market got a late fillip from the auction results.
“The cut-off for all the other papers was as expected but was bullish for the 2020 paper,” he said.
“Liquidity looks comfortable and bonds seem to be a good avenue for investment.”
Reserve Bank of India governor Duvvuri Subbarao said the economic downturn meant there would be more pressure for stimulus spending, but he said heavy borrowing worked against efforts to maintain a low interest rate regime.
The size of Friday’s auction and one next week were increased by Rs30 billion, or 25%, to Rs150 billion, raising worries among traders that government borrowing may overshoot an already large estimate.
The government has estimated gross market borrowing at a record Rs3.62 trillion in 2009-10, but that figure may change when the new government releases its revised budget.