Mumbai: The federal bond yields rose on Monday as investors trimmed positions ahead of a wave of fresh debt supplies due to hit the market in the coming weeks.
The yield on the 8.24% bond maturing in 2018 ended at 6.22%, 5 basis points (bps) above Friday’s close of 6.17% and even further above an intraday low of 6.02%.
The 2018 bond yield surged 92 bps in January mainly due to supply concerns after falling 254 bps in 2008.
Volumes were a high Rs87.60 billion ($1.79 billion) on the Reserve Bank of India’s (RBI) trading platform with the 8.24% bond being most traded.
Yields rose in the closing minutes of trading as traders speculated that the RBI may announce an auction soon.
According to an indicative calendar, the government is scheduled to borrow Rs70 billion through the issue of bonds between 6-9 February.
However, the calendar is not binding on the apex bank and it reserves the right to cancel, postpone or change the amount of funds to be raised.
“Bonds are bogged down by short-term uncertainties on the new benchmark bond, as the new bond is not so liquid, and also a lack of clarity on the government’s borrowing programme,” said K. Ramkumar, head of fixed income at Sundaram BNP Paribas Mutual Fund.
But economists and investors were unanimous the longer-term trend in yields was downwards, with new data highlighting a further slowdown in the economy.
Traders were also waiting for yields to move lower before exiting positions aggressively built up in previous weeks.
The exports dropped by an annual 1.1% in December to $12.7 billion, a third straight fall, data showed on Monday.
Debt funds investing in government securities fell in January on rising bond yields, while nine out of every 10 actively-managed stock funds fell more than the benchmark share index, data from fund tracker Lipper showed.
“However, in the medium-term interest rates are set to fall in response to the economic slowdown and the benchmark bond yield will be at 5.50% by March-end,” Ramkumar said.