Mumbai: Bond yields closed flat on Thursday ahead of Friday’s Rs120 billion ($2.5 bln) bond sale, despite disappointment the Reserve Bank of India (RBI) did not buy the full amount of bonds it had offered to at a buy-back auction.
The yield on the most traded 6.07% 2014 bond ended at 6.53%, one basis point above Wednesday’s close.
The 6.90% bond maturing in 2019 ended steady with Wednesday’s close of 6.86%.
Volumes were a heavy Rs93.55 billion on the RBI’s trading platform. There were no deals in the benchmark 10-year bond.
“The market was disappointed with the buyback results because the central bank did not buy the whole amount and also did not give any yield signal ahead of the policy,” said a senior trader with a foreign bank.
The central bank bought Rs35.89 billion of bonds after offering to buy up to 60 billion - the fifth consecutive auction where it has bought less than the indicated amount. The cut-off yields were in line with market expectations.
The central bank has so far bought back over Rs330 billion of bonds since April and has pencilled in a total Rs800 billion worth of buy backs by September-end.
“Now the market will look at tomorrow’s auction which is expected to be well bid because of the papers selected are in demand,” the trader said.
The government will sell Rs60 billion each of 6.49% 2015 bonds and 6.90% 2019 bonds on Friday.
Expectations the central bank will hold interest rates steady at a policy review next week were reinforced after infrastructure output in June grew at its fastest annual pace in 18 months, and wholesale prices fell for the sixth week.
The five-year interest rate swap ended at 6.25/30%, slightly higher than its previous close of 6.23/27%.
The spread between 1- and 10-year government bonds has been widening since late April. It peaked at 318 basis points earlier this week and remains close to that level.