Mumbai: The yield on mostly traded bond rose on Tuesday as concerns about a possible increase in government borrowing lingered, with sentiment also weighed down by firmer global oil prices.
The yield on the heavily traded 6.07% bond maturing in 2014 ended at 6.67%, higher than Monday’s 6.63%.
The benchmark 10-year bond, which was not traded on Monday, ended at 6.88% against its previous close of 6.89%.
Volume was a normal Rs67.5 billion ($1.4 billion) on the Reserve Bank of India’s electronic trading system.
“State-run banks are selling bonds ahead of the auction,” a trader with a private bank said, referring to the weekly auction on Friday.
The size of the auction was raised for the fifth straight week by 25% to Rs150 billion. Ahead of the sale, the central bank (RBI) will buy back 60 billion of bonds on Thursday.
The RBI will sell Rs60 billion of treasury bills on Wednesday.
Traders are worried the government will increase its borrowing plan in the annual budget on 6 July, from a record Rs3.6 trillion set initially in February for the fiscal year 2009-10 that began on 1 April.
“Locally, despite comfortable liquidity, suspense over the borrowing programme continued to put pressure on bonds,” Citigroup economist Rohini Malkani said in a note.
“We expect bonds to remain rangebound, with the budget and consequent RBI participation in the borrowing programme key factors to watch for,” she wrote.
Higher oil prices also weighed on sentiment. Oil, India’s biggest import, traded above $72 a barrel.
India’s wholesale price index fell to 0.13% in late May, a record low since the data was published from 1977-78. But higher global fuel prices has again raised concerns of it inching up in the coming months.