Mumbai: The federal bond yields rose on Monday to their highest in 2009 on supply concerns, although they could get some support from a change in accounting rules that could increase debt demand from primary dealers.
There was little impact from data showing the economy grew 6.1% in the June quarter from a year earlier, in line with expectations.
The 10-year benchmark bond yield ended at 7.44%, up 10 basis points from Friday. It rose to 7.45% during trade, its highest since 19 November.
“Yields are up mainly on supply concerns, but the central bank has said they would give some concessions to primary dealers which may create some demand for bonds,” said Sanjay Arya, deputy general manager of treasury at state-run Bank of Maharashtra.
The central bank on Monday allowed primiary dealers to put some of their bond portfolio in a hold-to-maturity account that does not have to be marked to market values.
The benchmark yield rose 44 basis points in August and is up 219 basis points in 2009, reflecting market worries about record planned government borrowing of Rs4.51 trillion.
Volumes were a high Rs51.50 billion ($1.1 billion) on the central bank’s trading platform.
The benchmark five-year interest rate swap ended at 6.38/43%, from previous close of 6.40/45% in low volume trade.
The central bank will auction Rs60 billion of treasury bills on Wednesday and Rs120 billion of bonds on Friday.
“Even then the market is worried about supplies and the outlook continues to be bearish,” Arya said.
India kicked off trading in interest rates futures on Monday, the latest in a series of steps to deepen the country’s markets, giving participants such as banks and companies a way to hedge against rate risks.
The December contract closed at Rs91.90 after opening at 94.50. The March futures rose to Rs91.22 from 91.11 at the start.
“Looking at the interest rate futures prices, it seems that the market is betting on higher yields and looks like the outlook is bearish there also,” Arya said.
The economy grew 6.1% in the June-quarter from a year ago, in line with forecasts of 6%, and the bond market was largely unaffected as a result.