Govt's 10-year bond yields rise 4 bps ahead of weekly auction

Market is eyeing the government securities auction worth ₹260 billion, to be conducted later today. Photo: MintPremium
Market is eyeing the government securities auction worth ₹260 billion, to be conducted later today. Photo: Mint
 2 min read . Updated: 16 Apr 2021, 11:42 AM IST Ravindra N. Sonavane

Yield on the 10-year government bond rose 4 basis points to hit a near one-month high ahead of the weekly bond auctions, due later on Friday.

At 11.24 am, the yield was at 6.161% against its previous close of 6.127%.

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Market is eyeing the government securities auction worth ₹260 billion, to be conducted later today.

On Thursday, the 10-year bond yield rose nearly 12 basis points soon after the Reserve Bank of India (RBI) bought ₹25,000 crore of securities from the secondary market, in the first tranche of its government securities acquisition plan (G-SAP 1.0), at yields higher than that expected by the market.

The cut-off yield on 10-year bonds was fixed at 6.0317% against 6% estimated in a Bloomberg survey. Analysts said that the cut-off price of GSAP was not as aggressive as expected.

In Thursday’s auction, RBI bought only ₹2501 crore of G-sec maturing in 2035, while it bought ₹7020 crore of 2027 maturity and ₹7511 crore of 2030 maturity.

“Rupee yields drifted up following higher cut-offs at the first bond purchase under the GSAP mechanism, with investors now focused on the Friday's weekly auction, where tepid demand might require primary dealers' participation", said said Radhika Rao an economist at DBS Bank..

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Bond market on Thursday also reacted to the latest inflation numbers which have reaffirmed the expectation that RBI is likely to hold interest rates in coming months. Wholesale price inflation quickened in March to 7.39%,its sharpest pace since 2012, led by higher prices across commodities. In February, WPI was at 4.17%.

Retail inflation has already surged to 5.52% in March as fuel and transportation costs increased.

"Bounce in global oil prices also added to caution at the margin, besides WPI inflation which surged to an eight-year high owing to an across-the-board gain in commodity prices. Tepid foreign investor appetite is likely to see the central bank play a more active role in bond buying in FY22 besides banks, with a INR1trn a quarter buy under just the GSAP likely to help absorb a third of the issuance." Rao added.

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