Bond sales devolve on primary dealers

MUMBAI: Sale of government bonds devolved on primary dealers for the fifth time this quarter as outlook on inflation remained bearish and with the sliding rupee neutralises the fall in global commodity prices, leaving little scope for change in the tight monetary policy stance.

Worries about deteriorating government finances and the fear of government raising its borrowing target spooked investors who are demanding higher yields.

"The market is not much concerned about the interest rates since its clear that the RBI would pause in December,'' said Arvind Konar, head, fixed income, Almondz Securities. "But the supply concerns continue to remain on anticipated higher fiscal deficit. The markets also do not see the open market operations as an attempt from the RBI to bring down the yields. These OMOs are being undertaken only to manage liquidity.''

The RBI devolved 10-year government bonds after the market demanded yields higher than 8.83%, the cut-off for Friday's government bond auctions. Ten-year benchmark bonds worth Rs 1,100 crore were devolved on the primary dealers. Yields on older 10-year benchmark, which has an outstanding of Rs 65,000-Rs 70,000 crore, fell to 8.85%, from 9% two weeks ago as investors speculated that the RBI may buy these bonds.

"The markets expect RBI to buy back the older securities. That is the reason we see the yields coming off on some of these bonds." said Ananth Narayan, regional head, fixed income, currencies & commodities, South Asia, Standard Chartered Bank.

The total traded value of the 7.80% government bond maturing in 10 years stood at Rs 305 crore with almost 30 trades, Clearing Corporation of India (CCIL) showed.

Yields dropped 10 basis points, or 0.10 percentage point, this week to 8.84% in Mumbai, reported Bloomberg. The rate on the 8.79% notes, due November 2021, which started trading on November 8, fell 11 basis points from a week ago to 8.84%, prices from RBI's trading system show.