Mumbai: Indian federal bond yields backed away from six-year highs on 16 June as softer global oil prices calmed concerns of an immediate policy move by the central bank.
At 10:24 a.m, the 10-year bond yield was at 8.36%, lower than 8.38% at close on 13 June when it had hit a high of 8.42% during trade, a level it last tested in May 2002.
Total volume was a thin Rs4.60 billion ($107 million) on the central bank’s electronic trading platform, with the 10-year bond being the most heavily traded.
“It is a brief rally and we may see more tightening by the central bank and 10-year yields may test 8.50% in the near term,” said Churchil Bhatt, a bond dealer at ING Vysya Bank.
Latest data showed India’s wholesale price index rose 8.75% in the 12 months to 31 May, the highest since 10 February, 2001. Inflation is expected to hit double-digits this week after a recent increase in oil prices.
Last week, the central bank raised its key lending rate by 25 basis points to 8% to contain inflation expectations, but left all other rates unchanged. Traders expect more tightening moves ahead.
Analysts were also worried of investor appetite at bond auctions this week amid a cash squeeze in the banking system.
Overnight cash rates were quoting at 8.10-8.15%, much above the 6% when cash is adequate, and the central bank injected Rs122.90 billion the system on 13 June, reflecting the extent of the cash shortage.
The central bank is selling Rs30 billion of bills on 18 June and Rs60 billion of bonds on 20 June.