Bonds fall as investors sell ahead of govt auction

Bonds fall as investors sell ahead of govt auction

Mumbai: Bonds fell this week on speculation investors reduced some of their holdings in anticipation of buying securities at lower prices at the government debt sale on Friday. The government sold Rs3,000 crore of 2017 notes and Rs4,000 crore of notes due in 2022, as planned.

Yields, which move inversely to prices, rose to the highest in more than a week as an increase in the cash reserve ratio for lenders from 10 November drained funds from the system, according to Rajesh Babu, a trader at Andhra Bank.

“Cash shortage in the system has kept the undertone bearish and has reflected in the trend in the market," Mumbai-based Babu said. “Yields may harden a bit in the near term."

The yield on the benchmark 7.99% note due July 2017 rose this week by 1 basis point, or 0.01 percentage point, to 7.89% in Mumbai, according to the central bank’s trading system. The price fell 0.09, or 9 paise, per Rs100 face amount to 100.63.

The debt sale on Friday was the fourth for the second half of the fiscal year ending 31 March, according to the government’s borrowing calendar. The government plans to borrow Rs1.56 trillion this fiscal year, of which Rs97,000 crore has already been raised in the six months through 30 September. There are plans to raise an additional Rs59,000 crore in the second half of the year. Bonds pared losses as a government report showed the inflation rate held near the lowest in five years.