The yield on the benchmark bond fell by 5 basis points on Monday as traders covered their short positions on the hope that the Reserve Bank of India (RBI) will announce measures to anchor yields. The 10-year benchmark 6.54%-2032 bond yield ended at 7.1054%, against the 7.1511% close in the previous trading session.
Earlier, traders had placed a short bet on anticipation that the central bank is lacking room to conduct any open market operations as liquidity is high in the surplus. “The bond yields have rallied because traders covered short positions. The bond yield movement seems more of a transitory, rather than a durable trend,” said Sandeep Yadav, head of fixed income, DSP Mutual Fund.
The benchmark bond has touched 7.27% in the previous week and it is now trading at 7.11%. Traders believe that the sentiment of the market has improved in the last three sessions due to the absence of weekly state development loan auctions and talks between the government and the RBI to cool yields through the announcement of various instruments such as OMOs.
The devolvement in 10-year bonds in the weekly bond auction was seen as the central bank is not comfortable with the bond yields and may announce some measures to ease yields.
Bond yields are expected to remain volatile in coming days due to various domestic and international triggers unless there is support from the central bank to anchor yields. “We believe that markets in short run are likely to be range bound and any sharp rise in yields is likely to be checked,” said Ajay Manglunia, MD and head – institutional fixed income at JM Financial.
