Bond yields at 3-month high

Government bonds recorded their worst month since September 2013 due to concern rising oil prices and the prospect of inadequate rains would reduce the scope of rate cuts by the Reserve Bank of India (RBI). On Thursday, yields on these bonds rose to a three-month high, with traders paring their holdings ahead of the long weekend.

The yield on the 10-year benchmark bond ended at 7.86 per cent, compared with  previous close of 7.82 per cent. On January 8, the yield had closed at 7.87 per cent.

“Oil prices are going up, US yields are rising, the rupee is depreciating and liquidity is tight. There factors are leading to a rise in yields. More, there is a bond auction every week, owing to which additional demand for bonds is less. There is a need to allow additional people to buy bonds,” said Debendra Kumar Dash, assistant vice-president (money market), DCB Bank.

Another factor contributing to a rise in yields on the 10-year bond is that the market is awaiting a new 10-year bond. As a result, the interest of traders in the existing paper is declining. “A new 10-year bond is expected soon due to which there is illiquidity premium in the existing paper. The rising crude prices are a concern for inflation numbers. The scope for further rate cuts is lower,” said a bond trader with a state-run bank.