Bond yields slide on rate cut hope

Indian federal bond yields fell as sliding commodity and oil prices raised expectations of a rate cut in the near term, but a sharp fall was prevented by auctions of fresh bond by the government this week.

The price of the 10-year paper rose by almost one rupee, inverse to a drop in yield. This movement was in expectation that another round of cut in repo rate, the rate at which RBI lends money to banks, in the near future, said a bond dealer with a large public sector bank.

The yield on 10-year bond stood at 7.59 at the close of trading. The slide in yields gained momentum since morning after early trades showed an yield of 7.75 per cent, according to the Negotiated Dealing System data.

 

The Reserve Bank of India will auction treasury bills worth Rs 7,000 crore on Wednesday and bonds worth Rs 10,000 crore on Friday.

The trading in corporate bonds was lacklustre as there were no buyers in the market. Buyers are waiting for fresh issuances that will hit the market by next week, dealers said.

“There won’t be much of a trade this week due to the holidays during the week. There will be some trade only next week,” said a dealer with a private bank.

Yields in the secondary market were quoted higher as there are primary issuances open. Rural Electrification Corp’s three-year bond issue, which opened on Friday, closed on Monday. The bonds were offering an yield of 11.75 per cent annually.