Mumbai: The yield on India’s most heavily traded federal bond fell on Thursday as the Reserve Bank of India (RBI) set better-than-expected prices at a buyback auction, with the drop limited by a Rs150 billion ($3.1 billion) sale on Friday.
The RBI said it had bought back bonds worth Rs46.20 billion, including Rs29.35 billion of 7.38%, 2015, at a cut-off price of Rs103.54 that was above a median forecast of 103.03 in a Reuters poll.
It had received Rs57.35 billion of bids at the Rs60 billion buyback auction. The bids that were accepted were sharply more than the Rs18.30 billion it took from Rs40.99 billion bids received in the previous auction.
The yield on the most traded 6.07% bond maturing in 2014 ended at 6.59%, below Wednesday’s closing of 6.61%.
The yield on the benchmark 10-year bond, which registered only 16 deals, ended at 6.91%, above its previous close of 6.89%.
Volume was high at Rs90.05 billion on the RBI’s electronic trading platform.
“Although the buyback result was better than market expectations it won’t have much effect on Friday’s auction,” said a trader at a foreign bank.
The size of Friday’s auction has been raised by 25% from originally scheduled, a move the RBI has followed for the fifth consecutive weekly sale and triggering speculation the government’s market borrowing may be increased.
“The demand for bonds at the auction will be good based on ample cash conditions, but underlying concerns on borrowing still remain,” the trader at the foreign bank said.
In its interim budget the government had planned to borrow a gross Rs3.62 trillion from the market in 2009-10.
“We expect cumulative borrowings for FY10 to be in the range of Rs4-4.25 trillion,” Edelweiss Securities said in a note on Thursday.
However, it expects proceeds from stake sales in state-run firms of about 100-200 billion and telecom spectrum auction proceeds of about Rs250-400 billion to mitigate the larger borrowing.
The government is expected to spell out the borrowing in its final budget on 6 July.
India’s wholesale price index fell in early June on an annual basis for the first time in at least three decades, but analysts said this did not signal a weakening economy and would not prod the central bank to cut rates further.