Mumbai: The bond yields and swap rates ended down on Wednesday as lower US yields provided some support but a further downside was prevented by a $2.6 billion bond sale on Friday.
The yield on the benchmark 10-year bond ended down four basis points on the day at 7.57%. It traded in a range of 7.57% - 7.61% during the day.
The 10-year yield was at levels before the central bank’s surprise 25 basis points rate increase on Friday. It had risen to 7.65% on Monday, its highest since 25 June.
Volumes were heavy at Rs65.75 billion ($1.4 billion) on the central bank’s trading platform.
The one-year rate ended at 5.64%, down four basis points from its previous close. It had risen to 5.72% on Tuesday, its highest since 18 November 2008.
The benchmark five-year swap closed at 6.75%, from its previous close of 6.80%.
“Bond yields are slightly down mainly because of lower US yields and also on expectations that liquidity conditions would improve,” said Bekxy Kuriakose, head of fixed income at L&T Investment Management.
US Treasury debt prices firmed on Wednesday extending previous day’s gains, with yields close to their recent lows as investors played it safe while they assessed the risk of a double-dip recession in the US economy.
The 10-year note yielded 2.92%, down 1.4 basis points and close to last week’s 14-month low of 2.88%.
The third-generation (3G) spectrum and broadband auctions raised $21.6 billion for the government, sucking cash out of the financial system as firms paid for their licences, pushing the interbank money market rate to a three-month high of 6.45% at end-June.
But traders said they expect cash conditions to improve on better government spending.
Financial services secretary R Gopalan said on Tuesday that the liquidity crunch in the banking system was expected to ease in the next 10-15 days.
The government is scheduled to sell Rs120 billion of bonds on Friday in line with its borrowing schedule, belying market hopes that the cash squeeze in the banking system would lead to a reduction in the auction size.
Traders said they were awaiting the food and fuel price data around noon (0630 GMT) on Thursday for clues about the price pressures in the economy.
The central bank is likely to raise interest rates again in its quarterly review on 27 July, a new survey found, and rates at the end of the year are likely to be higher than those forecast before Friday’s rise.
In interest rate futures on the National Stock Exchange, the September contract implied a yield of 8.1091%, while the December contract was not traded.