Bond yields rise on bigger bond auction

Bond yields rise on bigger bond auction
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First Published: Tue, Jun 02 2009. 11 05 AM IST
Mumbai: Bond yields rose in thin trade on Tuesday after the government said it would sell an additional Rs30 billion ($637 million) of debt in this week’s auction.
At 10:43 am, the yield on the 10 year benchmark bond was at 6.70% above its previous closing of 6.66%.
Volumes were light at Rs19.45 billion on the central bank’s trading platform.
“The market will wait and watch for the final budget which could accompany a small cut in rates to give it a sort of booster effect,” said Ashish Vaidya, head of interest-rate trading at HDFC Bank.
The budget is expected in early July.
After market hours on Monday the government said it would sell Rs150 billion of bonds on Friday, up from a scheduled Rs120 billion.
The government also announced sale of a new six-year bond at the auction and dealers said it could be because of more trading interest in shorter-tenor securities.
Vineet Malik, head of interest rates at HSBC India, said the waning trading interest and low volume was mainly due to too much supply and strong equity rally dousing hopes for rate cuts with commodities also rising fast.
The government is scheduled to raise a record gross Rs3.62 trillion through market borrowing in 2009-10. It has already hiked the size of three of its auctions.
Dealers are worried the government may increase its borrowing size when it announces its final budget.
“In the absence of rate moves, there would be risk of 10-year yield moving past 6.75% towards 7% and volatile moves in the overnight indexed swaps (OIS) market,” said J Moses Harding, head of global markets at IndusInd Bank.
Nomura expects the government’s gross market borrowing to rise to Rs4 trillion in 2009-10 due to higher spending and falling revenues.
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First Published: Tue, Jun 02 2009. 11 05 AM IST
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