Mumbai: Bond yields fell on Monday after the finance minister Pranab Mukherjee said the government would make sure its record borrowing did not crowd out private firms, and a smaller-than-expected weekly auction lent further support.
The government may take more steps to make cheaper and adequate funds available to the private sector while ensuring the smooth progress of its own borrowing, the finance minister said on Saturday.
The yield on the most traded 2019 bond, which was auctioned on Friday, ended at 6.79%, down from an auction cut-off yield of 6.90%.
The yield on the second-most traded 7.94% 2021 bond fell to 7.16% from a close of 7.33%. There were no deals in the benchmark 10-year bond for a second day.
Volumes were a high Rs136.85 billion ($2.8 billion) on the Reserve Bank of India’s trading platform.
The government will sell Rs120 billion of bonds on Friday.
While that was 20 billion more than scheduled, and the eighth successive weekly auction to have its size increased, it was lower than the Rs150 billion the government has auctioned each week since Mid-may.
“The market was expecting a Rs150 billion bond auction and instead of that there is a Rs120 billion auction, which has also helped,” said Anindya Das Gupta, head of treasury at Barclays Capital.
“Stock markets being soft is also having an impact on bonds, as basically there are worries about the economy and rates are likely to be on hold for a longer period of time,” he said.
Overnight indexed five-year swap rates fell for a fourth day, ending 5.99/6.04% from its previous close of 6.06/6.12%. During trade, the rate fell to 5.98/6.03%, the lowest since 26 May, according to Reuters data.
The spread between 1- and 10-year government bonds was near 300 basis points, its highest since the development of the modern bond market a decade earlier.
RBI and finance ministry officials will meet on Friday to revise the issuance calendar after the government’s gross borrowing target was increased to Rs4.51 trillion in last week’s Budget.