Bond yields down on rule change talk, auction

Bond yields down on rule change talk, auction

Mumbai: The federal bond yields fell on Friday as expectations rose mark-to-market rules for banks’ debt purchases would be eased, which could create more demand, and strong results at a bond auction also helped sentiment.

The yield on the 10-year benchmark bond ended at 7.36%, after trading in a band of 7.33-7.48%, down seven basis points on the day. The yield had risen to 7.50% last Friday, its highest since 18 November.

The yield fell 11 basis points this week and is down 8 basis points so far this month, but is still up more than 200 basis points in 2009.

Volumes were a heavy Rs110.45 billion ($2.3 billion) on the central bank’s trading platform.

“The market was oversold and was looking for a reason to retrace a bit, and the HTM news helped. Auction news was also good," said Mahhendra Jajoo, head of fixed income at Tata Asset Management.

Last month the central bank allowed primary dealers to put some bonds in hold-to-maturity (HTM) accounts that were free of mark-to-market requirements, which could help the market absorb record government bond issues this fiscal year.

Media reports a similar move was being considered for banks, the biggest buyers of debt, had boosted sentiment, dealers said.

Yields fell slightly on data showing industrial output rose 6.8 percent in July from a year earlier.

Cut-off yields at Friday’s auction of Rs110 billion of government bonds were were lower than market expectations and fully covered by market bids, which was seen as evidence of appetite for demand.

After market hours, the central bank announced a Rs110 billion auction for next week.

In interest rate futures on the National Stock Exchange (NSE), the December contract ended at 8.1414%, steady with Thursday’s close. The March contract closed at 8.3218% from 8.34% on Thursday.

The benchmark five-year interest rate swap closed at 6.68/73%, up from its previous close of 6.55/60.