Mumbai: Bond yields inched up on Monday after dropping for two sessions as investors turned cautious ahead of upcoming debt auctions, although ample cash in the market stemmed the rise.
The yield on the 10-year benchmark bond ended at 7.00%, well off the day’s high of 7.09% but still above its previous close of 6.96%.
Markets were shut on Friday and will again remain closed on Tuesday for local holidays.
Volumes were an average Rs96.25 billion ($1.9 billion) on the Reserve Bank of India’s trading platform with the 2019 bond being most traded.
“There is a huge supply lined up this week, consisting of longer-tenor bonds and that that is why investors are cautious, but ample liquidity is supporting yields,” said Satish Jeurkar, head of fixed income at Saraswat Co-operative Bank.
“Markets are likely to remain range bound, and further direction will depend largely on the auction results as well as liquidity conditions,” Jeurkar said.
The government plans to sell Rs2.41 trillion worth of bonds, or two-thirds of the annual target of a record 3.62 trillion, in the first half of this fiscal year, and those plans have pushed bond yields higher in recent months.
The market has speculated the government may sell debt directly to the RBI to ease pressure on the market, but Reserve Bank governor Duvvuri Subbarao said there were long-term costs of such moves.
The government is scheduled to sell Rs90 billion of treasury bills on Wednesday, and Rs120 billion of bonds on Thursday.
The apex bank will buy back up to Rs60 billion of bonds at an auction on Wednesday, which should help create demand at the bond auction on the following day.