Mumbai: The federal bond yields edged up on Wednesday on supply concerns, while upbeat data from the European services sector kindled hopes the worst of the global recession is over and will diminish the lure of safe-haven bonds.
The 10-year benchmark bond yield closed at 7.09%, above Tuesday’s 7.01%.
The spread between 1- and 10-year government bonds has been widening since late April and peaked at a record 326 basis points on 24 July. The spread currently stands at 265 basis points.
The benchmark five-year interest rate swap closed at 6.32/37%, little changed from the previous day’s 6.31/35%.
Volumes were moderate at Rs43.5 billion ($915.8 million) on the Reserve Bank of India’s (RBI) trading platform.
“Traders are on the sidelines as they expect yields to rise further,” said Sanjay Arya, deputy general manager of treasury at state-run Bank of Maharashtra.
“The yield may rise to 7.10-7.15% levels in the medium term.”
The central bank will buy back Rs60 billion of bonds on Thursday, ahead of the government’s Rs120 billion bond sale on Friday, part of the Rs4.51 trillion it plans to sell in 2009-10.
The RBI sold Rs95 billion of treasury bills on Wednesday.
The cut-off price of 91-day t-bill was slightly down from the previous week, while 182-day t-bill cut-off price was way below the previous auction two weeks earlier.
Dealers said the lower cut-off price indicates waning appetite for debt.
Traders said volumes would be lower on Thursday due to two-day strike called by staff at state-run banks.