Mumbai: Federal bond yields rose to near four-week highs on Friday, as uncertainties about general election results on Saturday overshadowed easy cash conditions.
At 11:00 am the benchmark 10 year bond yield was at 6.42% after climbing to 6.46%, and above the previous close of 6.38%. It had touched a four-week high of 6.47% on Wednesday.
Volumes were average at Rs48.35 billion ($976.8 million) on the central bank’s trading platform.
The ruling Congress-led coalition and its main rivals, the Bharatiya Janata Party (BJP) led alliance, have been jostling to secure new allies after exit polls suggested both would fall well short of a majority.
A trader at Axis Bank said that the market would be comfortable with either of the main two alliances forming a government, but a Third Front comprising motley group of regional parties and the communists could trigger concerns.
A new government will need to present a fresh budget and any increase in spending may exert additional pressure on the government’s borrowing programme.
It is already slated to borrow a record gross Rs3.62 trillion in 2009-10, with two-thirds of it in the first half of the year.
Traders said that there was talk that the central bank would issue a new 10 year bond in coming auctions, and this was putting upward pressure on yields.
“Since the 8.24% 2018 and 6.05% 2019 both mature in the same financial year and already have a huge outstanding, the central bank may issue a new 10 year bond, making the current benchmark paper illiquid,” the trader at Axis Bank said.
Cash levels in the banking system were abundant with banks parking Rs1.338 trillion in the central bank’s reverse repo window on Thursday.