Mumbai: The 10-year bond yields rose towards 7% on Thursday as the market awaited for details of the government’s borrowing plans and after a five-year bond did not attract as much demand as expected at an auction.
The benchmark 10-year bond yield ended at 6.89% after hitting an early high of 6.91%, its highest since 8 April. Only 12 trades were reported in the benchmark bond. The bond closed at 6.79% on Wednesday.
Market volumes were an average Rs50.55 billion ($1.1 billion) on the central bank’s trading platform, with the 2016 bond being most traded.
The yield on the 7.59% 2016 bond closed at 7.01%, having risen to a peak of 7.05% after the auction results, to end two points higher on the day.
“The 10-year yield may march towards 7.10-7.30% levels and the yield curve is likely to steepen further,” said a senior trader at state-run Allahabad Bank.
“Most traders would prefer to be on the sidelines and activity may pick up only after the budget.”
Traders are keen for clarity on the government’s borrowing plans after the last four weekly bond auctions were raised by 25% to Rs150 billion each. A Rs120 billion auction is scheduled for next week, and the market is waiting to see if it will also be increased.
Worries that the government could overshoot its forecast of 3.62 trillion gross market borrowing in 2009-10 have been pushing yields up.
The chairman of the Prime Minister’s economic advisory council said sales of stakes in state firms and telecom spectrum could help it meets it budget deficit target.
At Thursday’s bond auction, the cut-off yield for the five-year tranche was 6.7346%, while the cut-offs for the other three bonds were in line with expectations.
The market is also waiting for industrial output data on Friday. A slight fall is expected, the fourth in five months, but analysts will be looking to see if the data matches other indicators that suggest the economy has bottomed.