Tags:
Journalism of Courage
The Reserve Bank of India was unable to get the bond market interested in fully buying up a Rs 16,000 crore government issue. Long dated paper worth Rs 864 crore remained unsold in the first auction of government securities in FY 15.
The worry for the RBI is compounded as it plans to sell a less attractive state government papers next week on April 9, for Rs 5,385 crore.
Yield on the benchmark 10-year government bond, which had streaked past 9 per cent on Thursday, hit a new multi-month high ending at 9.06 per cent, a level last seen only in November 2013. Market participants expect the 10-year yield to harden more to a range of 9.2-9.4 per cent.
“Long-term yields are reflecting the high supply of paper, the market feels there may not be enough support through OMOs (open market operations),” Jayesh Mehta, MD and head, fixed income at Bank of America-Merrill Lynch, said. A devolvement not only indicates tepid demand for bonds but also the RBI’s intolerance towards higher yields, dealers pointed out.
The massive bond supply scheduled during April-September and the uncertainty over the government’s borrowing programme, owing to general election, is likely to drive up bond yields by a further 25 basis points in the coming months, they feel.
“There are enough indicators that show bond yields are going to harden more. I think the 10-year could go to 9.25-9.50 per cent,” said Ajay Marwaha, head of trading at HDFC Bank.
The government is scheduled to borrow Rs 3.6 lakh crore from the bond market during April-September. This translates to a weekly bond supply of at least Rs 16,000 crore. Moreover, dealers fear this indicated borrowing number could increase further once a new government is elected.
