Mumbai: Indian federal bond yields rose to their highest in more than a month on Thursday, 9 August, after the central bank raised the ceiling on market stabilisation bonds it issues to drain surplus cash from banks.
At 9:30am (0400 GMT), the yield on the benchmark 10-year bond was at 7.96%, off an early peak of 7.98% — the highest since 5 July. The bond ended at 7.91% on Wednesday.
After market hours on Wednesday, the Reserve Bank of India said the ceiling on market stabilisation bonds it can use to absorb funds generated by its currency intervention has been raised to Rs1.5 trillion ($37 billion) from Rs1.1 trillion.
“The first movement was a knee-jerk reaction. Then the buying emerged,” a foreign bank trader said.
Traders said foreign banks, which had sold heavily on Wednesday, bought at peak yields as they perceived current levels ideal for bargain hunting.
“Most of the policy action is behind us and the only negative looming large is a fuel price hike. I feel trading (in the 10-year bond) should settle between 7.85-7.95%,” Pradeep Madhav, chief operating officer at primary dealer Securities Trading Corp. of India, said.
Fuel prices in India are set by the government, which last raised prices in June 2006. Since then it has cut prices twice. A change in fuel prices directly impacts headline inflation.