Bond yields fall after four sessions of gains ahead of weekly auction

Government bond yields eased on short covering and FPI buying ahead of a Rs 32,000 crore auction, with spreads between 10-year and 15-year bonds and SDLs widening further

After rising for four trading sessions, yields on government bonds fell on Thursday on the back of short covering ahead of the weekly auction, dealers said.

 

The yield on the 10-year benchmark settled at 6.53 per cent against 6.60 per cent on Tuesday. Bond markets were shut on Wednesday for Ganesh Chaturthi.

 

On Friday, the government aims to raise Rs 32,000 crore by auctioning Rs 16,000 crore each of the 6.68 per cent 2040 and 6.90 per cent 2065 government securities.

 

During the day, the 15-year government bond (6.68 per cent 2040) saw significant buying interest as it is part of the upcoming auction, dealers said. The spread between the 10-year and 15-year government bonds widened to 50–55 basis points from 10 bps earlier. The spread between government bonds and state development loans (SDLs) also expanded to 80 basis points from 47 bps earlier.

 

“Although there are no fundamental cues in the market, yield levels seem lucrative to step up buying and technical levels are also looking good for the near term. Both the 10-year and the 15-year have become attractive as the spread between them has widened along with SDLs,” said a dealer with a public sector bank.

 

A few dealers also attributed buying by foreign portfolio investors in the government bond market as another factor behind the fall in yields.

 

Previously, bond yields had surged across the curve despite a 100 basis point reduction in the policy repo rate since February, which included a front-loaded 50 bps cut in the June monetary policy review.

 

A combination of factors — oversupply of long-duration bonds, fading hopes of further policy rate cuts, proposed GST reductions, and short positions by investors — has pushed yields higher over the past couple of months.