Bond auction partially devolves as yield rises

Negative sentiments in bond market led to partial devolvement in govt bond auction

The depreciating rupee has taken a toll on government bond yields. The yield on the 10-year government bond 7.16 per cent 2023 ended at near three-year high of 8.90 per cent on Friday. The yield on the 10-year benchmark government bond had ended at 8.93 per cent on November 15, 2011. The negative sentiments in the bond market resulted in partial devolvement in the government bonds auction.

The Reserve Bank of India (RBI) was auctioning bonds for a notified amount of Rs 16,000 crore. The devolvement on primary dealers was a little over Rs 1,444 crore. There were four government bonds on sale and all of them devolved partially.

The yield on the 10-year government bond rose by 40 basis points on Friday, compared with Wednesday’s close of 8.50 per cent. On July 16, the yield on the 10-year bond had moved up by 53 basis points after RBI had announced liquidity tightening steps to arrest the rupee depreciation. The bond market was shut on Thursday on the occasion of Independence Day.

“Government bond yields rose due to rupee’s depreciation against the dollar. Traders do not want to take fresh positions and that is also adding to negative sentiments. The 10-year US treasury yields also rose to historic high and that again impacted sentiments,” said N S Venkatesh, chief general manager and head of treasury, IDBI Bank and chairman of Fixed Income Money Market and Derivatives Association of India. If investors have a holding capacity, this is the right time to invest in government bonds, he added.

Banks are set to take a hit on their treasury portfolio in this quarter as the yield on the 10-year government bond rose by 146 basis points since the start of this quarter.

The yield was at 7.44 per cent on June 30.

“Banks are in a position where they can neither cut their losses not go for fresh purchases,” said Anoop Verma, vice president (treasury), Development Credit Bank. According to Verma, the yield on the 7.16 per cent 2023 government bond will touch 9 per cent next week.

Meanwhile, in intra-day trades, the rupee touched an all-time-low of Rs 62 per dollar on Friday and ended at Rs 61.71 compared with previous close of Rs 61.44.