Mumbai: As investors cut positions after the government announced an auction of new 10-year bonds later in the week, the 10-year bond yields closed at their highest level in more than two weeks on Wednesday.
Yield on the 10-year federal bond ended at 6.04%, highest closing level since 9 January.
During the trade it hit a high of 6.07%.
Volumes were high at Rs105.05 billion ($2.1 billion) on the RBI’s trading platform, with the 10-year bond being most traded.
The government will buy back Rs30 billion of intervention bonds on Thursday, ahead of an auction of Rs100 billion of bonds on Friday, including Rs40 billion of a new 10-year bond.
“Due to the absence of any active papers in the 2019 segment, the new 10-year bond will see a good response,” said Bekxy Kuriakose, head of fixed income at DBS Chola Mutual Fund.
“The auction cut-offs could come in at higher levels due to the absence of rate cuts in the policy and the fear of additional (government) borrowing,” she said.
On Tuesday, the RBI left the interest rates unchanged at a monetary policy review.
Government may cut state-set fuel prices by up to 11% on Wednesday, its second cut in nearly two months, officials said, following the fall in global crude prices.
“A fuel price cut by the government could fuel a mild rally for bonds,” Kuriakose added.