Yields dropped on Thursday even as the Reserve bank of India ( RBI) successfully sold R20,000 crore worth of bonds in its biggest auction ever under the government?s market borrowing plan. The full subscription was thanks to big bond redemptions and the rise in yields, which had whetted the appetite of investors.
Strong demand at the auction and the better-than-expected cut-off by the RBI fuelled buying in the secondary market as well, and the yield on the benchmark 10-year 8.83%, 2023 bond fell 5 basis points from the intra-day high to end at 8.85%.
?The trading range for the 10-year bond yield would be 8.80-9.10% for the next few weeks,? said the head of treasury at a public sector bank.
All the four series of bonds on offer had tenures of beyond 10 years. The RBI set the cut-off yield for 8.35% 2022 bonds at 9.16% while that on the 8.24%, 2027 bonds was set 9.31%. The cut-off for 9.20% 2030 bond was at 9.26%, while 9.23%, 2043 bonds was set at 9.30%.
?As far as demand and supply go, we are reasonably matched now. This month has large bond redemptions and credit growth is also slow; so, we are seeing some genuine demand coming in,? Ananth Narayan G, head of global markets at Standard Chartered Bank, said. Around R40,000 crore worth of bonds mature in April while R34,400 crore worth of bonds mature in May.
Bond yields had surged during the first week of April in response to the government’s announcement that it would borrow R3.6 lakh crore from the market.
The first auction under the government borrowing plan for 2014-15 held on April 4 had devolved owing to a lack of demand.
The 10-year bond yield had touched a four-month high on April 7, rising 30 bps in a month.
According to Ajay Manglunia, head of fixed income at Edelweiss Securities, a 9% yield on the 10-year bond always sees strong buying from investors.
?If you see historically,
the 10-year bond yield has not remained above 9% for a prolonged period,? he said.?There has been heavy redemption of bonds and that is why the auction has seen a strong demand,? he added.
Further, talk that the RBI also bought bonds from the secondary market to replace securities that had matured also improved sentiment.
Data from the Clearing Corp of India, showed that R3,277 crore worth of bonds were bought by ?other investors?. This category includes the RBI besides pension funds.
