The 10-year benchmark yield rose to end at a 17-month high of 7.27 per cent on Friday, as bond prices pared gains made on Thursday evening following a report that indicated a possible spending cut by the government. The yield had closed at 7.21 per cent on Thursday. On Friday, the yield shot up to as high as 7.295 per cent before retracing to 7.27 per cent.
On Thursday evening, yields fell sharply from the intra-day high after a report indicated the government is considering a cut in spending of Rs 30,000 crore to meet its fiscal deficit target, and that it is expecting to raise Rs 1 lakh crore from divestment against the budgeted amount of Rs 72,500 crore. However, as no confirmation on this was available on Friday, the news was dismissed as a possible rumour and this led the market to reverse its trend, bond dealers said.
“There is a lack of enthusiastic demand in auctions and investors are wary to put more money in bonds with the existing portfolio in depreciation. Market participants are trying to book profits in whatever small window of opportunity they find,” said a dealer. On Friday, primary dealers had to underwrite Rs 2,325 crore of floating rate bonds maturing in 2024 in the weekly auction conducted by the Reserve Bank of India (RBI).
On Thursday, bond yields had surged after the market considered minutes of the RBI’s monetary policy committee meeting to be more hawkish compared to the previous policy minutes. Michael Debabrata Patra, who is an executive director at the RBI, indicated in the MPC minute that the current phase of accommodation in the monetary policy stance — reduction of the policy rate by 200 basis points — is one of the deepest barring the easing associated with the global financial crisis.
“Also, it has been more fully transmitted. In my view, this phase has matured; it is time now to signal its end and commence the withdrawal of accommodation, consistent with the evolving stance of liquidity management,” he stated.
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