Bond yields unlikely to fall further: Traders

Govt has planned to borrow in the range of Rs 14,000-20,000 crore every week from the market in the first half of the current fiscal which will put pressure on bond prices

The rally in the government bond prices seen last may not sustain due to the continuous supply of debt every week and the caution ahead of the election results next month, say bankers.

Last Thursday, the 10-year government bond yield eased by over 10 basis points to 8.85%. On the same day, the RBI conducted the largest-ever auction of bonds worth Rs 20,000 crore.

"It seems difficult that yields will fall further as every week the Reserve Bank would be selling higher amount of bonds," said a treasurer at a state-owned bank.

The government has planned to borrow in the range of Rs 14,000-20,000 crore every week from the market in the first half of the current fiscal which will put pressure on bond prices.

"Also, the money which came last week after redemption of security is also being utilised, and for any fresh buying traders do not have money," a senior dealer with another state-owned bank said.

Last week, there was redemption of over Rs 40,000 crore from the 7.37% 2014 security.

The redemption money helped Reserve Bank to garner full notified amount in the weekly bond auction last Thursday, as market participants were replenishing their stocks.

The RBI offered to sell Rs 20,000 crore, which was highest ever, of four securities -- 8.35% (2022), 8.24% (2027), 9.20% (2030) and 9.23% (2043).

Some of the traders said life insurance behemoth LIC bought majority chunk of the 2030 and 2043 bonds in the previous week's auction.

According to a treasurer at a private bank, the benchmark 10-year bond yield may not ease beyond 8.80%.

"We may not see yield falling below 8.82-8.80% in the absence of fresh buying till the time the election results are declared," he said.

The results of the ongoing elections will be declared on May 16.