Mumbai: Bond yields fell for a second day on Friday as ample cash supported demand, but long bond yields rose over the week as traders worried about the government’s borrowing plans for the fiscal year 2010.
The yield on the most traded 6.07% 2014 bond ended at 6.50%, lower than its previous close of 6.53%. Over the week, the 2014 yield fell 14 basis points.
The yield on the benchmark 10-year bond, in which there were only 25 deals, ended at 6.99%, one basis point below its previous close.
The 10-year yield is up six basis points this week and 29 basis points so far this month.
Volumes were a heavy Rs96.25 billion ($2 billion) on the Reserve Bank of India’s trading platform.
“The market is not very comfortable with the longer duration bonds because of a lack of direction on borrowing,” said Sanjay Arya, deputy general manager of treasury at state-run Bank of Maharashtra.
At Friday’s bond auction, primary dealers had to buy Rs5.83 billion of of the 2027 bonds and Rs3.53 billion of the 2035 bonds that were unsold, while the 2014 and 2021 bonds were fully sold.
“A lot depends on the budget now, there is a feeling in the market that borrowing may not be as high as anticipated earlier as there would be some efforts from the government for disinvestment,” Arya said.
The government releases an updated budget on 6 July, and the market has been concerned that it would increase planned record gross market borrowing of Rs3.6 trillion for 2009-10.
The past six weekly bond auctions have each been increased by 25% to Rs150 billion each, fuelling the concern, although the government may be able to raise cash through selling stakes in state-run firms and other assets.
“Although the deficit will be high, we think it can be easily financed, in part due to impending disinvestment and the auctioning of 3G (telecom spectrum) licenses. Long bonds may rally as a result,” Goldman Sachs said in a note on Friday.