Firm demand at auction weighs on yield of on-the-run government bonds

The weekly government bond auction saw stronger than anticipated demand, which influenced the secondary market, pressuring the yields of active bonds, according to dealers.

The government sold bonds worth Rs 39,000 crore.

On Friday, the yield on the benchmark 10-year government bond dropped to 7.19 per cent from 7.20 per cent on Thursday.

“A cut-off around 98.95-98.96 on the 14-year paper was the expectation. However, the cut-off was better than expected, leading to a drop in yield by the end of the day,” a dealer at a primary dealership stated. He added, "Most of the bonds were snapped up by public sector banks." The Reserve Bank of India (RBI) set a Rs 99.05 cut-off for the 14-year government bond.

It's important to note that bond prices and yields have an inverse relationship.

The RBI set the cut-off yield on the 7-year, 14-year, and 40-year bonds at 7.21 per cent, 7.29 per cent, and 7.41 per cent, respectively.