Mumbai: Federal bond yields fell for a second day on Friday, extending a retreat from one-month peaks as investors squared positions before the RBI’s interest rate review next week.
The yield on the 10-year benchmark bond ended at 5.72%, off the day’s high of 5.86% and below Thursday’s close of 5.81%. Bond markets will be shut on Monday for a national holiday.
Volumes were average at Rs95.8 billion ($1.9 billion) on the RBI’s trading platform, with the 10-year bond being most traded.
“Yield could be in 5.25-5.50% range if the central bank cuts key rates by 50 basis points each at the policy meet, and in 5-5.25% range if there is a 100 basis points cut each,” said Piyush Wadhwa, senior vice president at ICICI Securities Primary Dealership.
“However, if there is no cut in key rates, the yield could rise to 5.90-6% levels,” Wadhwa said.
Yields rose earlier in the day after Suresh Tendulkar, chairman of the prime minister’s Economic Advisory Council said he would not be surprised if the central bank (RBI) did not cut rates at the 27 January review.
However, he added there was scope to reduce India’s key interest rates, which dealers said added to the uncertainty ahead of the policy review.
A top economic advisory body to the prime minister on Friday cut its growth forecast to 7.1% from 7.7% for the current fiscal year to end March.
Despite falls on Thursday and Friday, the 10-year yield ended 12 basis points higher on the week and is 86 basis points above the 5 January all-time low of 4.86%, which was hit after a 100 basis point rate cut.
The government is scheduled to sell Rs100 billion of debt between 23 January to 30 January. Dealers said they expect the sale to be held after the monetary policy review.