Mumbai: Bond yields held near seven-week highs highs on Friday as data showed the economy performed better than expected in the March quarter and traders waited for a weekend review of the government’s borrowing plans.
Yields edged down on the day as state-run banks kept up their buying seen through the week, but the 10-year yield still ended up 22 basis points from last Friday and 47 basis points in May.
The 10-year benchmark bond yield ended at 6.70%, off the day’s high of 6.72%.
It had ended at 6.73% on Thursday, when it had peaked at 6.74% which was its highest since 13 April.
“Expectations are that the central bank may convert the next three to four auctions into Rs150 billion each,” Anindya Das Gupta, head of treasury at Barclays Capital, said referring to Saturday’s meeting of finance ministry and central bank officials.
“Things are still too fluid and they may just restrict themselves to the coming month’s borrowing.”
Volumes were a heavy Rs95.75 billion ($2 billion) on the central bank’s trading platform.
The past two auctions of governments bonds were increased by 25% to Rs150 billion each, raising market concerns that the government may be looking to increase its planned gross borrowings of Rs3.62 trillion in 2009-10.
Stronger-than-expected growth data also helped put a floor under yields, as some saw it as pointing to an end of the Reserve Bank’s easing cycle.
The economy grew 5.8% from a year earlier in the March quarter, above analysts’ forecast of 5.2% growth.
“I think policy rates have bottomed out, so the next move for the policy rate is upwards,” said A Prasanna, chief economist at ICICI Securities primary dealership, who predicted rates would stay on hold over the next six to nine months.