Mumbai: Federal bonds yields ended little changed on Monday, with concerns about the lack of clarity on the government’s borrowing plans and worries about when the central bank could start tightening policy offset by ample cash.
The yield on the most traded 6.07% 2014 bond closed at 6.65%, up one point from Friday’s closing of 6.64%. There were no trades in the benchmark 10-year bond on the day.
Volumes were a moderate Rs4,975 crore ($1 billion) on the central bank’s trading platform.
“There are no positives for the bond market right now except that the liquidity in the system is quite high,” said a senior trader at a state-run bank.
“This is the reason the play is at the shorter end of the curve, but the longer end may see a further sell-off,” he said.
High levels of cash in the banking system are capping yields despite the supply worries. Banks parked Rs125, 000 crore rupees in the central bank’s reverse repo window on Monday, indicating the extent of surplus in the system.
The government will sell Rs15, 000 crore of bonds this Friday, the sixth successive auction it has increased the size from a scheduled size of Rs12, 000 crore.
The increases have raised market fears the government may overshoot planned record gross market borrowing of Rs360 crore 2009/10. It is scheduled to outline its final borrowing programme on 6 July at the final budget.
The government is also due to sell Rs5950 crore of state loans on Tuesday and Rs5500 crore of treasury bills on Wednesday.
India should eventually look at reversign its expansionary monetary polcy, the central bank governor said on Saturday. He did not say how or when the policy will be reversed, but said he would not do it right now or in the near future.