Bond yields up at 3-year high

Yields on government bonds surged, as traders stayed away in the wake of the higher-than-budgeted borrowing plan announced for the second half. The ten-year benchmark government bond yield closed at a three-year high level of 8.75 per cent on Monday.

Trading worth Rs 9132 crore was recorded in the government bond market on Monday, lower than the daily average volume of Rs 13,300 crore in September and Rs 17,286 in August. “Markets are bit nervous and confused, and at such times, it is better to stay away rather than hold on to the baggage,” said Moses Harding, head (global markets group), IndusInd Bank. He said there was a risk of yields on the ten-year paper inching up further as the monetary policy review approaches and no positive action or comment comes from the central bank.

Trading in the current ten-year, 7.80 per cent benchmark bond was shut on Friday for coupon payment, while money markets were shut on Thursday on account of Dushera. Yields on the security climbed 18 basis points from Wednesday's close.

Lack of participation from banks, which are major supporters of government debt, also led to the sharp upsurge in yields. Banks are mandated to hold 24 per cent of their net demand and time liabilities in the form of statutory liquidity ratio (SLR). “Banks are currently holding five-six per cent of excess SLR, because of which the ability to absorb new issuances is reduced,” said a treasury official of a public sector bank.

The government has already borrowed more than Rs 60,000 crore under the security. Reserve Bank of India (RBI) would auction 7.80 per cent bonds maturing in 2021, worth Rs 6000 crore this week, the central bank announced after market hours on Monday.

Last week's auction of 30-year and 15-year papers saw devolvement, as investors demanded higher yields and because there were two options in the longer tenure bracket. Going ahead, devolvement is expected in more auctions. “There is huge supply in store, along with a lack of appetite, as investors are already over-invested. They have to now think out of the box,” said Harding. “Yields on the ten-year securities could rise to nine per cent this quarter,” said a bond dealer with a domestic brokerage.

RUPEE RISES
The rupee advanced for a third day, as improved economic data from the US eased concern that the global recovery was faltering. The rupee strengthened 0.4 per cent to 48.9775 per dollar at the close in Mumbai, according to data compiled by Bloomberg. It earlier touched 48.8950.

CALL RATE FIRMS UP
The overnight call money rate closed at 8.30 per cent from its previous close of 7.50 per cent. It moved in a range of 8.20 per cent and 8.35 per cent.