Illiquid bonds rise on spread play

Buying comes after RBI cut MSF by 25 bps

Relatively illiquid government bonds gained as investors looked for exposure to maturities similar to the benchmark 10-year bonds, but with much higher spreads.

The buying came after the RBI cut the Marginal Standing Facility rate by 25 bps to 8.75% on Tuesday, which has also lowered the cost of carrying as overnight rates fall.

The 8.28% 2027 bond yield was down 3 bps at 8.80%, the 8.20% 2025 bond yield down 4 bps at 8.94% and the 8.33% 2026 bond yield down 2 bps at 8.94%.

These bonds have a high spread over the 10-year benchmark despite being close in tenor, says a dealer. The benchmark 10-year bond yield is flat at 8.54%.

 

"We are seeing bonds which are yielding above 8.75% rally as the MSF rate has been cut to that level," says a dealer.