Bond yields ease on ample cash, supplies eyed

Bond yields ease on ample cash, supplies eyed


Mumbai: Indian federal bond yields eased on Wednesday, 10 October, as traders expected currency intervention by the central bank to push up cash levels in the banking system and help offset outflows for bond auctions.

At 9:30 a.m. (0400 GMT), the yield on the 10-year federal bond was at 7.91%, down from the previous close of 7.92%.

The Indian rupee rose to a nine-and-a-half year high on Wednesday on expectations of further strong capital inflows into a record-setting stock market.

The main stocks index hit a record high in early trade.

Traders expect the Reserve Bank of India (RBI) to intervene in the currency market to check the rupee’s rise. When it intervenes by buying dollars, it infuses more cash into the money markets.

“Investors are very bullish on liquidity after the rally in equities. They also believe the RBI can do little to drain cash," a foreign bank trader said.

On Tuesday, the central bank accepted Rs696 billion ($17.7 billion) of bids at its daily reverse repurchase window, which traders said was an indication of high cash surpluses with banks.

Traders braced for fresh supplies this week.

The central bank will auction Rs65 billion of treasury bills on Wednesday, followed by Rs80 billion of market stabilisation scheme (MSS) bonds the following day, and Rs100 billion of government bonds on Friday.