Mumbai: The federal bond yields rose to their highest since last November on Monday on persistent worries about heavy debt supplies, but eased later as investors found the levels attractive to buy.
The 10-year benchmark bond yield ended up three basis points at 7.34%, having risen to 7.38% during trade, which was its highest since 20 November.
“There was some buying by investors after a sharp rise in yields, but the rally is unlikely to sustain unless the central bank gives some support,” said Bekxy Kuriakose, head of fixed income at DBS Cholamandalam Asset Management.
“The buying today is not based on fundamentals,” she said.
The 10-year yield has risen 16 basis points since Thursday’s close, with sentiment unsettled by disappointing bond auction results on Friday. The yield has risen 34 basis points so far in August and more than 200 in 2009.
Volumes were a heavy Rs81.50 billion ($1.7 billion) on the central bank’s trading platform.
Dealers said yields were unlikely to ease much before September, when the size of weekly government bond supplies will get smaller.
The government has already sold Rs2.61 trillion of bonds since April of the 2.99 trillion planned for April-September.
As well Rs120 billion of bonds to be auctioned on Friday, the market also has to digest auctions of Rs45 billion of state loans on Tuesday and Rs60 billion of treasury bills on Wednesday.
“Right now the market is mainly looking at the continuous supply. It has already priced in a higher inflation and expectations are that the central bank will not hike rates before January,” Kuriakose said.
The benchmark five-year interest rate swap ended at 6.46/50%, higher than Friday’s close of 6.39/44.