Indian government bonds fell
in early deals on Monday, lifting the benchmark 10-year yield
towards a two-week intraday high, as traders priced in record
state borrowing amid tepid demand and tight liquidity.
The benchmark 10-year yield was at 6.6470 per cent as
of 11:40 a.m. IST, up about 5 basis points on the day. It ended
at 6.6062 per cent on Friday.
Bond yields rise when prices fall.
States are set to raise ₹5 lakh crore ($55.42 billion)
through bond sales between January and March, their biggest
quarterly borrowing on record, and will auction ₹30,100 core
worth of bonds on Tuesday.
“There is a huge supply glut in the market… we have to wait
for the State development loan auction on Tuesday to see if the
market can absorb the excess supply,” a private-bank trader
said, adding the 10-year yield could test 6.70 per cent if demand
remains weak.
Liquidity has also remained tight, with the banking
system’s average daily surplus falling to ₹72,600 crore in
December from ₹1.78 lakh crore in November. It was lower at ₹61,440 crore as of January 2, CCIL data showed.
To pump cash into the system, the Reserve Bank of India
will purchase bonds worth ₹50,000 crore later in the day,
with Indian lenders expected to offer bonds at higher-than-prevailing yields,
traders said.
Separately, a rise in US Treasury yields is adding to
the woes.
The 10-year US Treasury yield rose 3.6 bps on Friday,
its biggest single day jump since December 12, and hovered close
to Friday’s levels at 4.1809 per cent in Asian hours.
RATES
India’s overnight index swap rates rose on Monday, as rising
supply pressure weighed on bonds and overall sentiment remained
bearish on rates.
The one-year OIS rate was up 1.25 bps at
5.4875 per cent and the two-year OIS rate rose 1.5 bps
to 5.59 per cent. The five-year OIS rate jumped 3 bps
to 5.99 per cent. ($1 = ₹90.2260)