Mumbai: Bond yields eased on Tuesday after a fresh round of risk aversion in global markets supported demand for debt, but were off the day’s lows as liquidity concerns weighed.
The yield on the benchmark 10-year bond ended at 7.46%, off its intra-day low of 7.42% and two basis points below its previous close. It traded in a range of 7.42-7.51% through the day.
Volumes were a heavy Rs166.05 billion ($3.5 billion) on the central bank’s trading platform.
“It was mostly a traders’ market. It closely tracked the global developments, especially toward the end of the session,” said a senior trader at a state-run bank.
“At the same time, concerns about tighter cash conditions were always there.”
Banks borrowed a net Rs676.25 billion from the central bank on Tuesday via its liquidity adjustment facility, showing the extent of cash deficit after telecom firms paid for the third generation (3G) spectrum they purchased recently.
Cash conditions are likely to remain tight in the banking system in the short term, said OP Bhatt, the chairman of the country’s top lender, State Bank of India.
Traders said Thursday’s food and fuel price data and industrial output data on Friday could be watched for more cues. A Reuters poll forecast India’s industrial production grew 13.5% on year in April.
Indian states sold Rs34.14 billion of 10-year loans on Tuesday and the government is due to sell Rs110 billion of bonds on Friday.
US Treasuries rebounded from session lows in Europe on Tuesday, ahead of supply and broadly supported as investors sold riskier assets.
The benchmark five-year interest rate swap ended at 6.52%, steady at its previous close.
In interest rate futures on the National Stock Exchange, the June contract was at 8.1328%, while the September contract was not traded.