Mumbai: The federal bond yields were steady in thin trade on Tuesday, caught between a large pipeline of supplies and plentiful cash with banks.
The 10-year benchmark bond yield ended at 7.01%, unchanged from its previous close, after moving in a tight 6.99-7.04% band.
The yield has risen 98 basis points from its April low of 6.03%.
Volumes were low at Rs36.75 billion ($770 million) on the Reserve Bank of India’s (RBI) trading platform.
The government will sell Rs95 billion of treasury bills on Wednesday and Rs120 billion of bonds on Friday.
“Traders are overwhelmed by the debt supply in the primary market,” said a trader at STCI Primary Dealership.
The apex bank set a cut-off yield of 7.95-8.02% at the auction of Rs74.74 billion of 10-year state loans on Tuesday.
“The results of the state loan auctions were disappointing as the market was expecting 7.90-7.95% levels,” the dealer said.
Cash was, however, plenty with banks parking Rs1.29 trillion in the central bank’s reverse repo window on Tuesday.
The spread between 1- and 10-year government bonds has been widening since late April and peaked at a record 326 basis points on 24 July. The spread currently stands at 265 basis points.
The spread is narrowing due to expectations that clearer signs of an economic revival will lead to monetary tightening, which could push up shorter tenor bond yields, traders said.