Mumbai: The federal bond yields nudged higher on Thursday as investors braced for a $2.5 billion sale on Friday, but economic concerns following weak monsoon rains limited the drop in bond prices.
Data showed monsoon rains from 1 June to 11 August were 29% below average, which could dent a nascent economic recovery and force the Reserve Bank of India (RBI) to stick to its easy money policy for longer.
The benchmark 10-year bond yield ended at 7.04%, three basis points above Wednesday’s close.
Volumes were moderate at Rs46.5 billion ($967 million) on the central bank’s trading platform.
“Traders were creating space for the new seven-year bond along with two other papers at tomorrow’s auction,” said Srinivasa Raghavan, treasury head at IDBI Gilts.
“The 10-year bond should be rangebound tomorrow, between 7 and 7.05%.”
The government is set to sell on Friday Rs60 billion of a new seven-year bond through a yield based auction; Rs40 billion of 6.35% 2020 bonds and Rs20 billion of 7.35% 2024 through a price based auction.
Dealers said the auction results would be watched for market appetite for debt.
The benchmark 5-year interest rate swap at 6.40/45%, from its previous close of 6.41/46.