Bond yields fall to over 1-month low on govt borrowing plan

Bond yields fall to over 1-month low on govt borrowing plan

Mumbai: The bond yields fell to their lowest in more than a month after the government announced a lower-than-expected borrowing amount for the first half of the next fiscal year starting from April.

The yield on the 10-year benchmark 6.35%, 2020 bond ended at 7.76%, after touching 7.75%, its lowest since 24 February. The bond had ended at 7.85% on Friday.

The 2020 bond moved in a band of 7.86-7.75%.

Volumes were a heavy Rs78.90 billion ($1.75 billion) on the central bank’s trading platform.

“The gross number is better than what market was expecting. The first auction will go smoothly because of demand at the beginning of the year. But I expect yields to move above 8% after first few auctions," said Ananth Narayan, head of rates, credit of south Asia at Standard Chartered Bank.

The government said it will borrow Rs2.87 trillion, or 63% of the planned borrowing in the first half of 2010-11, less than market expectations of Rs3.1 trillion.

India is scheduled to borrow a total of Rs4.57 trillion in fiscal 2010-11.

Dealers expect bond yields to continue moving southwards on Tuesday due to fiscal year-end demand from state-run banks.

“Banks have been buying heavily and shifting bonds to HTM (held-to-maturity) segment to prop up their year-end treasury profit. This will reverse once the year ends," said a foreign bank dealer.

On Tuesday, the 10-year benchmark bond is seen moving in a 7.70-7.80% band.

The benchmark five-year interest rate swap also fell, taking comfort from a lower-than-estimated borrowing number. The five-year swap fell to 6.81/85% after release of the borrowing amount from 6.87/90% and ended at 6.83/86%. The benchmark swap had ended at 6.85/88% on Friday.

In interest-rate futures on the National Stock Exchange, the June contract implied a yield of 8.3289%.