Bond yields at 2-week high as taxes chip bank funds

Bond yields at 2-week high as taxes chip bank funds

Ten-year bond yields held at the highest in two weeks on concern tax payments due last week reduced funds banks use to purchase debt.

Local companies may have paid as much as Rs35,000 crore as their third instalment of advance taxes for the fiscal year ending 31 March, said Roy Paul, assistant manager of treasury at Federal Bank Ltd in Kochi. The outflow may sap demand for debt as banks are the biggest buyers of government securities.

“The scarcity of funds will prevail in the near term and keep investors at bay," Paul said. “The near-term outlook is slightly bearish because of the tight cash situation and it may take some time before demand for bonds picks up."

The yield on the benchmark 7.99% note due July 2017 held at 7.9% at the close of trading in Mumbai, according to the central bank’s trading system.

The benchmark 10-year bond yield declined earlier on speculation dollar purchases by the central bank will boost cash in the banking system.

Only 85% of India’s 31.9 million tax payers filed their income-tax returns in the last financial year ended 31 March, the newspaper reported.