Mumbai: Bond yields fell on the first trading day of 2009-10 after the government’s borrowing needs for 2008-09 turned out to be Rs330 billion ($6.6 billion) smaller than indicated.
Bond auction results were also in line with market hopes, and dealers expected sentiment to remain slightly positive next week given the market’s initial reaction to the government’s record borrowing needs for 2009-10 had been factored into prices.
The yield on the 10-year benchmark bond ended at 6.96%, according to the Clearing Corporation of India website, off an early low of 6.83% and below Tuesday’s close of 7.01%.
The yield rose 93 basis points in 2008-09 fiscal year which ended on 31 March. Bond markets were shut on Wednesday for banks’ annual book closing, and will be shut on Friday for a holiday.
Volumes were a low Rs86.40 billion on the Reserve Bank of India’s trading platform with the 2019 bond being most traded.
“There is ample liquidity in the system and the MSS announcement is positive. Huge redemptions are also lined up next week, adding on to liquidity which may create some demand,” said Roy Paul, deputy general manager of treasury at Federal Bank.
The RBI said on Tuesday it had transferred only Rs120 billion of a planned 450 billion of market stabilization scheme (MSS) bond funds to the government in 2008-09, citing the government’s “comfortable cash position”.
The remaining 330 billion remainder could be converted into bonds or bought back in 2009-10, depending on the government’s funding needs, it said.
The government plans to sell Rs2.41 trillion worth of bonds, or two-thirds of the annual target, in the first half of 2009-10 fiscal year.
“There is slight improvement in sentiment but concerns regarding oversupply is not yet addressed,” said Paul.
After market hours, the RBI said it would buy back up to Rs60 billion of bonds at an auction on Wednesday.