Yields may ease after govt skips a week's borrowing

The yields on the 10-year benchmark 7.8 per cent government bond may ease or stabilise on lack of re-issuances. Last week, the government skipped auction of three dated bonds, thereby ensuring enough demand for the existing papers.

The yield on the 10-year benchmark bond closed at 8.27 per cent on Friday, after tracking developments in the global markets. For the week, the 10-year benchmark was up by four basis points (bps) and traded in the range of 8.22-8.39 per cent.

“Yields are seen in the range of 8.23-8.30 per cent this week. Any news from the euro zone debt issue may have an impact,” said a bond dealer with a public sector bank. On Thursday, bond yields had fallen 10 bps on concerns over prospects of global recovery.

The Reserve Bank of India (RBI) is to announce the auction plan for this week tomorrow, after market hours. The government was to borrow Rs 12,000 crore this week via sale of three dated securities.

In the past two weeks, the government has borrowed higher than the scheduled amount in the 10-14 year segment, and cut the supply in the five to nine-year one, to ease the pressure on short-term yields. More than planned borrowing in the short tenors through treasury bills and cash management bills had contributed to liquidity shortage. This week, cash management bills worth Rs 8,000 crore would mature.

Liquidity for the week remained in deficit in the range of Rs 30,000–86,000 crore. Banks borrowed around Rs 85,000 crore from RBI’s repo window on Friday. Repo drawdown is expected to stay high, as June 20 marks the start of a new reporting fortnight.

Overnight Indexed Swap rates fell on increased concerns over the Greek debt situation. On Friday, the benchmark five-year swap rate ended at 7.58 per cent, lower than Thursday's close by eight bps. The one-year rate closed at 7.9 per cent, down by six bps.