Mumbai: Bond yields rose in late trade on Wednesday after staying steady most of the day, tracking US Treasuries, while tight cash in local markets kept sentiment negative.
The yield on the 10-year benchmark bond ended at 7.50%, up four basis points from Tuesday’s close. The 2020 bond traded in a band of 7.46-7.50%.
Volumes were a modest Rs122.45 billion ($2.6 billion), compared with Rs166.05 billion on Tuesday on the central bank’s trading platform.
“There can be some pain in the shorter-end bonds due to the liquidity tightness which can go on for two months. But it is positive for longer bonds going ahead as borrowing could be lower and rate hikes may not be aggressive given global developments,” said Ashish Parthasarthy, treasurer, HDFC Bank.
The central bank set a cut-off of 5.2418% on 91-day T-bill, higher than 5.2006% in previous week, while on the 182-day T-bill it set a cut-off of 5.2478%, compared with 4.9737% fortnight back.
The current bout of liquidity tightness led to such high cut-offs on treasury bills, Parthasarthy said.
Liquidity has tightened following the outflow of Rs677 billion toward payment of third generation (3G) spectrum auction. Banks borrowed Rs661.10 billion from the Reserve Bank of India’s daily liquidity auction window, indicating the tight cash condition.
However, SK Kalra, general manager of forex and treasury management at state-run Allahabad Bank, said, “More than liquidity, the volatile markets globally are keeping sentiment negative. There is not much volume now.”
Globally, foreign exchange, equity and bond markets have been giving mixed signals. While US Treasury yields were up, the euro had fallen briefly to a record low, and European shares pushed higher tracking gains in Asian equity markets.
At 1204 GMT, the 10-year yield was at 3.2112, higher than previous close of 3.1894%.
On Thursday, bonds are likely to take opening cues from overnight movement in US Treasuries.
“Broadly, I expect the 10-year to move in a range of 7.45-7.60% even after the auctions. Long-bonds look good. Net supply in July-September is less than in April-June,” Parthasarthy of HDFC Bank said.
On Friday, the RBI will sell Rs110 billion of bonds including Rs50 billion of 7.80% 2020 bond, Rs20 billion of 8.32% 2032 bond and Rs40 billion of a new five-year bond.
The benchmark five-year interest rate swap ended at 6.55/58%, compared with 6.52/56% on Tuesday.
In interest rate futures on the National Stock Exchange, the June contract was at 8.1091%, while the September contract was not traded.