Mumbai: The bond yields snapped a four-day rising streak and closed marginally lower, after inflation data as well as cut-off yields at a government debt auction came in lower than expected.
The yield on the 10-year benchmark bond ended at 8.07%, compared with Tuesday’s close of 8.08%. It had risen to 8.13% earlier during trade, its highest since 3 October 2008.
Indian markets were shut on Wednesday.
“Low inflation and good cut-offs were a surprise because of which yields came down. But I don’t expect yields to soften much from here as there are auctions every week,” said Arun Kaul, executive director, state-owned Central Bank of India.
The benchmark 6.35% 2020 bond moved in a wide band of 8.07-8.13% during the day.
The government sold 2015 bonds at a cut-off yield of 7.70%, lower than expectations of 7.73%. It also sold 2022 bonds at a cut-off yield of 8.34% and 2032 bonds at 8.63% compared with estimates of 8.35% and 8.54% respectively at a Rs130 billion auction.
The annual inflation rose less than expected in March at 9.90%, below a median forecast 10.39% and on par with February’s annual rate of 9.89%.
The headline inflation eased as food and manufacturing price pressures eased, suggesting the central bank will opt for a 25 basis-point rate rise next week rather than a more aggressive move.
Volumes were heavy at Rs94.75 billion ($2.13 billion) compared with Rs63.80 billion on Tuesday.
“There was some short-covering by banks after the large sell-off in the last few days,” said a dealer with a foreign bank.
Bond yields are expected to rise on Friday as dealers may want to stay light ahead of the annual monetary policy announcement on Tuesday. The 2020 bond is seen in 8.05-8.12% on Tuesday.
The benchmark five-year interest rate swap ended at 7.01/05% compared with 6.99/7.02% on Tuesday.
In interest-rate futures on the National Stock Exchange, the June contract implied a yield of 8.2909%.