Mumbai: The benchmark federal bond yields rose to six-week highs on Wednesday as traders braced for a possible hike in government borrowing, with the first hurdle a Rs150 billion ($3.1 billion) bond auction on Thursday.
The 10-year benchmark bond yield ended at 6.63%, above Tuesday’s close of 6.56%. It rose to 6.69% in early trade, its highest since 15 April.
Volumes were a heavy Rs70.40 billion on the Reserve Bank of India’s trading platform, with the 2019 bond being most traded.
“The auction papers are not the regularly traded ones... cut-off yields may comes at higher levels specially given the bearish sentiment prevalent,” said Bekxy Kuriakose, head of fixed income at DBS Cholamandalam Asset Management.
Dealers said the higher-than-expected underwriting commission the central bank will pay primary dealers on the 2035 bond being auctioned might reflect concern that market demand may not fully cover the 30 billion tranche.
“Also, markets are nervous about extra borrowing coming through,” Kuriakose said.
Finance minister Pranab Mukherjee said the government was ready to deliver further fiscal stimulus, but hoped to maintain a fiscal deficit target of 5.5% in 2009-10.
Senior officials from the finance ministry and central bank will meet on Saturday to review the borrowing needs for the first half of the fiscal year.
The government has planned record gross market borrowing of Rs3.62 trillion in 2009-10, and said it plans to sell two-thirds of it in the first half.
There is no threat that India’s swelling budget deficits will crowd out private borrowers as liquidity is ample and stimulus spending just makes up for a drop in private investment, a deputy central bank governor Rakesh Mohan said.