Mumbai: Bond yields were mixed on Tuesday as renewed worries about the global economic outlook that pushed down US treasury yields were countered by concerns about the government’s borrowing needs.
The yield on the most-traded 6.07% 2014 bond ended at 6.61%, below Monday’s close of 6.65%.
But the yield on the benchmark 10-year bond rose to 7.01% from 6.93% on Friday. There were only 46 trades in the bond on the RBI’s platform, after it not traded at all on Monday.
Longer-dated bonds have fallen out of favour with traders on concerns that the government will need to issue a lot more debt to cover a widening budget deficit.
Volumes were a heavy Rs87.25 billion ($1.8 billion) on the RBI’s trading platform.
“The market is awaiting the budget now, the week-on-week supply of bonds is also high,” said Anindya Das Gupta, head of treasury at Barclays Capital.
“There is interest in deploying cash but no clear trend is seen,” he said.
A government official said on Tuesday the worst was over for the Indian economy and a higher-than-normal fiscal deficit should not be a concern for interest rates.
The government will sell Rs150 billion of bonds this Friday, the sixth successive auction which it has increased from a scheduled Rs120 billion.
At its interim budget in February, the government set record gross market borrowing of Rs3.62 trillion in 2009-10. The borrowing target is expected to be revised in the budget on 6 July, and the market is worried it will be increased.
The RBI has maintained excess cash levels in the banking system, which has helped generate some demand for debt. Banks parked Rs1.27 trillion in the RBI’s reverse repo window on Tuesday, showing the extent of excess cash.
The World Bank warned on Monday prospects for the global economy remained “unusually uncertain” despite recent signs of improvement in parts of the world and cut its 2009 growth forecasts for most economies.
US treasury yields pulled back from recent eight-month highs on Monday and oil fell towards $67 a barrel on Tuesday following the World Bank’s economic outlook.