New Delhi: India’s 10-year bonds dropped as yields at the lowest in more than two weeks deterred investors. Bonds also declined after the rate at which banks lend to each other rose to the highest this month, spurring concerns that surplus cash at banks will dwindle, leaving investors with less money to buy debt.
Near-zero interest rates in the money market partly helped bonds on Monday extend last week’s advance.
“There’s a bit of profit taking by some investors,” said Poonam Tandon, a senior bond trader at Development Credit Bank Ltd in Mumbai. “As the call rate inches up, there’s also some nervousness.”
The yield on the 7.49% bond due in April 2017 rose 2 basis points, or 0.02 percentage point, to 8.2% at the 5.30pm close of trading in Mumbai, according to the central bank’s trading system. The price of the security fell 0.15, or 15 paise per 100-rupee face amount, to 95.25.
The overnight lending rate between banks on Tuesday rose to 4.13%, the highest since 28 May, according to data compiled by Bloomberg. It dropped to an average 1.8% this month compared with 6.2% in May and the central bank’s 7.75%.
Bonds rallied on Monday after the government said it will pay less than estimated for the stake it plans to buy in State Bank of India.