Mumbai: Bond yields edged up on Friday ahead of a policy review next week where traders expect signs of improving economic activity to see the Reserve Bank of India (RBI) leave its key interest rates unchanged.
The yield on the most traded 6.90% 2019 bond ended at 6.92%, above its previous close of 6.86%.
The yield on the 7.94% 2021 bond ended at 7.27%, above Thursday’s closing of 7.24%. For the week it is up 8 basis points.
Volumes were a low Rs53.15 billion ($1.1 billion) on the RBI’s trading platform.
“Auction results were in line with expectations, the next cue will be the monetary policy and since the rates are widely expected to be kept on hold there is no negative,” said Sreenivasa Raghavan, treasury head at IDBI Gilts.
The RBI is widely expected to leave interest rates steady at a quarterly policy review on Tuesday and will try to avoid agitating a bond market already under pressure from huge government debt supply.
Analysts will be looking for any signal on when the central bank thinks it may have to start removing extra liquidity or tightening policy.
The five-year interest rate swap ended at 6.30/34%, above Thursday’s close of 6.25/6.30%.
The spread between 1- and 10-year government bonds has been widening since late April and is at a record 323 basis points.
The government sold Rs120 billion of bonds on Friday and the auction results were in line with market expectations.
Market sentiment had been dampened on Thursday as the central bank bought back only Rs35.89 billion of bonds on Thursday after offering to buy up to 60 billion - the fifth consecutive auction where it has bought less than the indicated amount.