Mumbai: Bond yields fell from their highs to end almost steady on Tuesday, with excess cash in the banking system generating demand even as inflation data showed signs of emerging prices pressures.
The yield on the most traded 6.07% 2014 bond ended at 6.53%, one basis point below its previous close. It had risen to 6.59% after inflation data showed while prices fell in annual terms, they were rising on a weekly basis.
The yield on the 10-year benchmark bond which registered only 35 deals was at 7%, one basis point above its previous close.
Volumes were a heavy Rs74.90 billion ($1.5 billion) on the Reserve Bank of India’s trading platform.
“Buying is now mainly on account of ample liquidity, but overall the sentiment will remain cautious ahead of the budget,” said a senior trader at a state-run bank.
“Tomorrow’s bond auction results will also be watched closely for cues,” he said.
The government is selling Rs150 billion of bonds on Friday, having increased the scheduled auction size from Rs120 billion for a sixth consecutive week.
The auction changes have raised concerns that the government may increase its 2009-10 borrowing target from a record gross Rs3.6 trillion when its updated budget is released on 6 July.
India’s wholesale price index fell less than expected in mid-June from a year earlier, marking a build-up in price pressures as the economy picks up and the effect of past sharp falls in energy prices wears off.
Moody’s Economy.com said it expects the central bank (RBI) to maintain a neutral policy stance, amid signs the economy has already hit its trough and the need for further rate cuts has softened.