Bond yields steady as cut-off yield on 10-year bond in line with forecast

Government bond yields remained unchanged on Friday as the cut-off for the new 10-year paper matched market expectations, with traders watching US Treasury moves next week

Government bond yields remained steady on Friday after the cut-off yield on the new 10-year bond was set in line with market expectations, said dealers.

 

The government sold ₹32,000 crore worth of new 10-year government bonds on Friday. The cut-off yield was set at 6.48 per cent.

 

The yield on the benchmark 10-year government bond settled at 6.51 per cent, unchanged against Thursday.

 

“The cut-off yield was along the expected lines. The market was steady on Friday. However, the market will take cues from the movement of US Treasury yields on Monday,” said a dealer at a primary dealership.

 

The market was cautious ahead of the weekly auction, as last week the RBI cancelled the auction for the seven-year government bond. This was after investors demanded a yield of around 6.5 per cent, higher than the yield on the new 10-year bond, a level the central bank was unwilling to accept.

 

A combination of factors, excess supply of long-duration bonds, fading expectations of further rate cuts and short positioning by investors have impeded monetary transmission in the bond market.

 

Despite a cumulative 100-basis-point (bps) reduction in the repo rate between February and June, the 10-year bond yield has not eased in line with policy rates. It has instead inched higher since the 50-bps cut in June.

 

The yield on the benchmark 10-year government bond has risen by 24 bps since June, while yield on the 10-year US Treasury bond has fallen by 32 bps. 

 

“The cues will be taken from the state bond auction next week,” said a dealer at a state-owned bank.

 

Seven states raised ₹11,600 crore at the weekly bond auction on Tuesday, lower than the notified amount of ₹13,600 crore.

 

Maharashtra rejected all bids for the re-issue of its 2050 and 2055 bonds, each worth ₹1,000 crore.

 

The borrowed amount was significantly less than ₹19,450 crore indicated in the borrowing calendar.

 

States and Union Territories plan to borrow up to ₹2.81 trillion through state government securities in the third quarter of FY26.