Mumbai: The bond yields ended near two-week highs on Friday taking cues from US treasuries and on concerns of a possible cash crunch next week due to outflows for third-generation (3G) spectrum payments.
The yield on the benchmark 10-year bond ended at 7.52%, after touching 7.53%, the highest since 14 May and 12 basis points higher than Tuesday’s close.
Volume was lower at Rs164.25 billion ($3.5 billion) compared with Rs214.15 billion ($4.5 billion) on the central bank’s trading platform. The benchmark 2020 bond moved in a range of 7.43-7.53% during the day.
“I expect the system to borrow 20,000 crore (Rs200 billion) from Monday through the repo window,” said Hitendra Dave, head of global market, HSBC Bank in Mumbai.
Bond yields are likely to inch up further on Friday amid liquidity and supply concerns. The 2020 bond is seen in 7.51-55% on Friday. The bond market is closed for a local holiday on Thursday.
Next week, Rs677 billion is expected to flow out to the government from the banking system as payment for 3G spectrum auction.
Dealers said this could push the systemic liquidity into a negative zone to the extent of Rs400 billion. Telecom firms which won spectrum in the 3G auction have to pay by 31 May.
Liquidity concerns were evident on the cut-off yield at the three-month treasury bill auction. The Reserve Bank of India (RBI) set a cut-off of 5.0361%, sharply above 4.2153% a week ago.
“There were no bids from banks. Only PDs (primary dealers) had bid at the T-bill auction. This shows that demand at Friday’s auction will also be weak,” said a dealer at a private bank.
Demand for the Rs120 billion bond auction on Friday is seen muted as the 3G outflow will happen soon after the bond auction.
India is scheduled to sell Rs40 billion of 7.38%, 2015 bonds, Rs50 billion of 7.80%, 2020 bonds and Rs30 billion of the 8.32% 2032 bonds on Friday.
“There is also fear about the continuous auction even during this huge 3G outflow. This also pushed up yields,” said SK Chakraborty, treasurer at Allahabad Bank in Mumbai.
US 30-year Treasury bond yields rose as stock futures pointed to a higher open on Wall Street.
The 30-year bond was at 4.14%, up from 4.08% late on Tuesday, while benchmark 10-year Treasury notes were at 3.25%, up from 3.18%.
Dealers will also wait for the gross domestic product (GDP) data coming out on Monday to take cues on the central bank’s policy moves. A Reuters poll showed the March quarter growth is likely to be 8.7% from a year earlier, its strongest since December 2007.
The benchmark five-year interest rate swap ended at 6.45/48%, from the previous close of 6.36/39%. The one-year swap ended at 4.98/5.00% compared with previous close of 4.93/95%.
In interest rate futures on the National Stock Exchange, the June contract implied a yield of 8.1949%, while the September contract was not traded.