Mumbai: Bond yields rose on Friday, snapping its two-day losing streak, as investors awaited for cues on the government’s likely borrowing target for the next fiscal year in the interim budget.
The yield on the most traded 8.24% bond maturing in 2018 ended at 6.17%, off an early low of 6.06% and 10 basis points (bps) higher than Thursday’s close of 6.07%.
The yield has fallen 36 bps from an eight-week high of 6.53% touched on 5 February.
Volumes were a high Rs81 billion ($1.7 billion) on the Reserve Bank of India’s trading platform, with the 2018 bond being most traded.
“The market will get a further direction after details on the central bank’s (RBI) open market operations are out and also after the government outlines its borrowing plans for the next fiscal year in the interim budget,” said Satish Jeurkar, head of fixed income at Saraswat Co-operative Bank.
The government, which sold Rs80 billion of bonds on Friday, is scheduled to borrow an extra 460 billion between 20 February and 20 March. It will present its interim budget on Monday.
On Tuesday, the RBI said it will buy government bonds through open market operations on 19 February, to inject liquidity ahead of the first Rs120 billion bond auction under the new borrowing schedule.
Traders said the announcement of a state loan sale after market hours on Thursday also pushed up yields on Friday. The apex bank will sell 10-year state loans worth Rs83.62 billion on Tuesday.
Expectations the RBI may lower rates again have gained ground after recent economic data showed signs of a further slowdown.
“A cut in interest rates is desirable, but the final decision has to be taken by the RBI,” Suresh Tendulkar, chairman of the Prime Minister’s economic advisory council said on Friday.
The RBI cut its key lending rate by 350 bps between October and early January. It kept its key rates unchanged at a monetary review in late January, saying banks had to pass on the benefits of previous rate cuts.