Bond yields rise from 7-week low on supply fear

Bond yields rise from 7-week low on supply fear

Mumbai: The bond yields retraced from seven-week low and rose as profit-booking and supply fears emerged in late trade.

The yield on the 10-year benchmark bond closed at 7.79% after hitting 7.71% in early trade, which was its lowest since 9 February, according to Thomson Reuters data and compared to Monday’s close of 7.76%.

The 2020 bond moved in a band of 7.71-7.79% during the day.

Volumes were a moderate Rs71.75 billion ($1.59 billion) on the central bank’s trading platform.

“PSU (public sector undertaking) banks were selling below 7.75%. They were in the money. This led to selling by traders too," said a dealer with a foreign bank. The 10-year benchmark bond yield touched a seven-week low after dealers drew comfort from a lower-than-expected borrowing number for the first half of the next fiscal starting in April.

However, concerns of impending supply beginning next week emerged in late trade. The government will sell Rs2.87 trillion ($64 billion) of bonds from April to September, and the first auction worth Rs120 billion will be held next week.

“I expect bonds to be weak tomorrow as the supply fears will continue," said Manish Wadhawan, deputy head of interest rates, HSBC India.

“Tomorrow being the last day of the year, there may not be much activity in the second half as most banks have taken their positions," he added.

The 10-year benchmark bond is seen moving in 7.75-7.80% band on Wednesday.

Few state-run banks may want to pull down the yields on the last day of 2009-10 year to reduce mark-to-market losses, which may cap a sharp rise in yields, traders said.

In the January-March quarter, the 10-year benchmark bond yield has gone up by 11 basis points till date.

The benchmark five-year interest rate swap ended at 6.83/86% unchanged from Monday’s close. In interest-rate futures on the National Stock Exchange, the June contract implied a yield of 8.3115%.