Mumbai: Federal bond yields rose to their highest in a week on Tuesday with traders and investors searching for clues as to whether the RBI will cut interest rates at its policy review next week.
The 10-year benchmark bond yield ended at 5.68%, off an early low of 5.52% and above Monday’s close of 5.60%.
Volumes were Rs100.50 billion on the RBI’s trading platform, with the 10-year bond being the most heavily traded.
The benchmark yield is up 43 basis points so far this month and fell 254 basis points last year.
Dealers said market participants were staying on the sidelines, looking for cues before taking fresh positions. The RBI will review its policy on 27 January.
Dealers said they would study results from the government’s auction of Rs95 billion ($1.9 billion) of treasury bills on Wednesday and cut-offs at the auction of state development loans worth Rs65.51 billion on Thursday.
A dealer with a foreign bank said worries over more federal bond auctions ahead dampened sentiment.
The RBI’s auction calendar shows the government is scheduled to auction Rs100 billion of bonds between 23-30 January, but it reserves the right to change the terms of an auction, including canceling or postponing it.
The RBI has aggressively eased its monetary policy since the middle of October to kindle demand and shore up the slowing economy.
It has cut the repo rate, at which it lend to banks, by 350 basis points to 5.50%, with the latest cut effected at the start of 2008.
The 10-year yield touched an all-time low of 4.86% earlier this month following the aggressive rate action.
The RBI has also slashed banks’ cash reserve requirements by 400 basis points to 5% during the period.