Bond yields breach 9%- mark; rupee below 60 to the dollar

Ahead of the first government bond auction on Friday, bond yields rose, with the 10-year benchmark bond (8.83 per cent, 2023) yield touching nine per cent, a level last seen on November 22 (9.1 per cent).

The rupee, meanwhile, dropped to its lowest in a week.

The Reserve Bank of India (RBI) will auction four government securities for a notified amount of Rs 16,000 crore on Friday.

On Thursday, the yield on the 8.83 per cent, 2023 government bond fell to its lowest this year, closing with a fall for the second consecutive day, after the central bank set a higher underwriting fee for this week’s bond sale, reinforcing concerns on demand for the auction.

Higher underwriting commissions indicate primary dealers want to charge higher fees for buying the debt in case subscriptions fall short. The last time the government had sold debt was in early February.

“Tomorrow, the auctions will start…these are the jitters before the auction. The yield on the 10-year bond might trade at 8.9-9.1 per cent till next week,” said Anoop Verma, vice-president (treasury), Development Credit Bank.

In the first half of 2014-15, the government will borrow a gross Rs 3.68 lakh crore, 61.6 per cent of the target for the entire financial year.

“The market will take further cues from tomorrow’s auction,” said Vijay Sharma, executive vice-president (fixed income) at New Delhi-based PNB Gilts. “A yield level of about nine per cent will generate buying interest,” he added.

On Wednesday, 10-year bonds had fallen, with the yield climbing the most since September, on concern demand for existing securities would fall, as the government started its annual borrowing programme this week. On Thursday, the rupee fell, a reversal from its eight-month high on Wednesday, after shares retreated from a record-setting rally, with importers rushing to buy dollars. The rupee closed at 60.18/dollar, compared with previous close of 59.9/dollar. It had opened at 59.96/dollar and, during intra-day trade, touched a low of 60.28/dollar.

Of late, RBI has been buying dollars to shore up reserves and prevent excessive appreciation in the rupee. Besides, bearish equity markets have also kept the rupee under pressure.