Mumbai: Federal bond yields came off one-week lows on Thursday, ahead of the government’s Rs120 billion ($2.4 billion) debt auction and political uncertainties as traders awaited election results.
At 11am, the benchmark 10 year bond yield was at 6.35% after falling to 6.29%, its lowest since 8 May. It had closed at 6.33% on Wednesday.
Volumes were average at Rs28.85 billion on the central bank’s trading platform with the 2019 bond being most actively traded.
The ruling Congress-led coalition is slightly ahead of the opposition Hindu-nationalist alliance as voting ended in India’s general election but both fell short of a parliamentary majority, TV projections said.
“I don’t think election results will change anything materially in the fixed income side, on the rate side,” said Arvind Sampath, head of rates trading at Standard Chartered Bank.
“But the new government’s policies will be watched, especially its budget that may come around the end of June,” he said.
The government said in its interim budget in February it would borrow a record Rs3.62 trillion in 2009-10, with Rs2.4 trillion scheduled in the first half of the year.
The borrowing is likely to be revised in the final budget.
The government is selling Rs120 billion of bonds at Thursday’s auction, which includes Rs80 billion of a new five year bond, and traders said they would watch for the auction outcome for further cues.
Abundant cash in the banking system and the Reserve Bank of India’s (RBI) reassurances to maintain adequate liquidity have helped absorb the debt supplies in the market.
India’s annual inflation rate is expected to have fallen back to 0.3% at the start of May after rising in the previous three weeks, a Reuters poll of analysts showed on Wednesday.
US government bonds rallied on Wednesday after surprisingly weak retail sales data reminded investors of the rocky road to recovery for an economy mired in its worst recession in decades.