Govt bond yield harden 7 bps as auction cut-off yield higher than expected

The government bond yields hardened by seven basis points on Friday to settle at 7.20 per cent, as the cut-off yield at the weekly auction was set higher than market expectations. The rise in US Treasury yields further aided the domestic yields, dealers said.

"The cut-off yield was higher than what the market had expected; then the US yield rose. There was no positive sentiment in the market," a dealer at a primary dealership said. "Some people were overloaded due to the rally yesterday (Thursday). They off-loaded today (Friday)," he added.

The Reserve Bank of India set the cut-off yield on the 7-year, 14-year, and 30-year bonds at 7.15 per cent, 7.25 per cent, and 7.32 per cent, respectively.

The benchmark yield settled at a seven-week low level of 7.13 per cent on Thursday.

Moreover, offshore traders paid fixed rates in the five-year overnight indexed swap rates, which further pushed the yield higher, dealers said.

The five-year swap rate rose by nine basis points to settle at 6.78 per cent on Friday, against 6.69 per cent on Thursday.

However, the one-year swap rate remained steady, as the domestic rate view remains unchanged, dealers said. It settled at 7.04 per cent, against 7.07 per cent on Wednesday.

"There was offshore paying in the OIS today (Friday). The five-year tracked US yields as well," a dealer at another primary dealership said.