Mumbai: Federal bond yields extended their decline for a second consecutive day on Tuesday as investors added positions on hopes there may not be fresh federal bond auctions this week.
At 10:38am, the 10-year benchmark bond yield was at 5.64%, below Monday’s close of 5.79%.
Volume was heavy at Rs45.45 billion on the central bank’s electronic trading platform with the 10-year bond being the most actively traded.
The 10-year yield dropped 41 basis points on Monday on hopes an indicative government borrowing plan of 100 billion rupees via federal bonds between 12 and 16 January may be postponed in the absence of an announcement so far by the RBI.
“The buying coming in now is mainly due to a lack of announcement from the central bank, which is fuelling hopes that the auction may be postponned or may be combined with a buyback of intervention bonds,” said Satish Jeurkar, head of fixed-income at Saraswat Co-operative Bank in Mumbai.
Dealers said yields could trade in a 5.55-5.70% band before any further auction announcement and expectations of RBI’s purchases in the secondary market were also pressuring yields lower.
According to clearing house data, foreign banks, state-run banks and private banks were major sellers and mutual funds, pension companies, insurance firms and the RBI were buyers of bonds on Monday.
Bonds were also taking cues from global oil prices which were trading around $37 per barrel as investors grew more pessimistic about energy demand on predictions that the world economy will slow down sharply.
“However, this phase is a temporary one and a long-term view can be taken based on the outcome of the central bank’s upcoming monetary policy on 27 January,” Jeurkar said.
Three states will sell Rs55.95 billion of bonds on Tuesday, and the RBI will auction Rs90 billion of treasury bills on Wednesday.