Mumbai: Indian federal bond yields were contained on Wednesday, 19 March, caught between a sharp rise in US Treasury yields and hopes a large US rate cut could see local rates fall, with tight cash conditions also limiting demand.
At 9:47am, the 10-year federal bond yield was at 7.6%, unchanged from Tuesday’s close but above an early low of 7.59%.
Total volume was a normal Rs890 crore ($220 million) on the central bank’s electronic trading platform.
“The initial euphoria on the Fed move is evaporating and any uptick in prices will be sold into by investors because of the cash squeeze,” said a senior dealer at a state-run bank.
US Treasury debt prices fell on Tuesday after a 75 basis points interest rate cut sparked a big U.S. stock market rally. Benchmark 10-year U.S. Treasury yields rose 17 basis points, the biggest single-day leap in nearly four years.
Local cash conditions remained volatile, with overnight rates above 8% on Tuesday, well above the 6% levels seen when cash is adequate.
The Reserve Bank of India pumped in Rs24,100 crore at its money market operations on Tuesday, indicating the extent of the cash crunch due to corporates making advance tax payments, which Kotak Mahindra Bank has estimated will total around Rs48,000-55,000 crore.
Volumes are likely to remain muted ahead of a long holiday weekend. Bond markets are closed on Thursday and Friday due to religious holidays.