Mumbai: Bond yields rose on Thursday ahead of a $2.4 billion debt sale on Friday, although banks are awash with surplus cash and a bond buyback by the Reserve Bank of India (RBI) was in line with market expectations.
The 10-year benchmark bond yield ended at 6.24%, after trading between 6.16 and 6.26%. It had ended at 6.17% on Wednesday.
“The central bank is maintaining sufficient liquidity and it is difficult for yields to rise from these levels. The 10-year bond is likely to remain in the 6-6.35% range,” said Sanjay Arya, deputy general manager of treasury at state-run Bank of Maharashtra.
Volumes were heavy at Rs113.75 billion ($2.3 billion) on the central bank’s trading platform with the 2019 bond being most traded.
Cash availability has been boosted by heavy government spending, redemption of bonds, interest payments and slower consumer demand for loans.
The central bank received bids for Rs1.486 trillion at its reverse repo auction on Thursday, but accepted only Rs1.449 trillion. Banks have been parking excess cash in the reverse repo window at 3.25%.
Dealers said the cut-off yields at central bank’s Rs60 billon buyback auction on Thursday were broadly in line with market expectations. Friday’s Rs120 billion auction should sail through smoothly, they said.
Arya said the market would remain rangebound until a new government takes office after national election results due on 16 May.
“If the new government opts for disinvestment then the pressure on market borrowing will be reduced,” he said.
The government had set gross market borrowing of Rs3.62 trillion in the current financial year, but this is likely to be revised when the new government takes over.