Mumbai: The federal bond yields eased on Tuesday after a sharp rise to 16-month high in the previous session prompted some buying, but uncertainly over the coming Budget remained a concern.
The yield on the benchmark 10-year bond ended at 7.87%, after falling as low as 7.83% early. It had closed at 7.88% on Monday after hitting 7.97%, its highest since 15 October 2008.
Traders said a lack of federal debt sales in the remaining weeks of the fiscal year to March 31 helped demand.
“Ample liquidity in the banking system is another positive,” said a trader at a state-run bank. Banks had parked more than Rs700 billion ($15.2 billion) in the one-day reverse repo on Tuesday, indicating the surplus cash.
He said the 10-year yield was likely to trade between 7.85 and 7.95% until the 26 February Budget, which will outline the government’s borrowing programme for the next fiscal year.
Traders said news that government was not sure if it can conduct a 3G wireless spectrum auction by the end of March did not impact the market as it was mostly priced in.
Deferring the auction increases the risk of widening the country’s fiscal deficit for the current financial year.
Volumes were moderate at Rs66.15 billion on the central bank’s reporting platform.
The benchmark five-year interest rate swap ended at 7.11/14%, little changed from its previous close of 7.12/15%.