Bond yields at 3-week low; inflation data seen key

Bond yields fell to their lowest level in more than three weeks on Thursday as concerns of aggressive policy action abated following the South Korean central bank’s unexpected decision to keep rates on hold. The absence of a bond sale next week also supported the demand for debt, dealers said. The yield on the 10-year benchmark bond was down 3 basis points at 7.91% after easing to 7.88%, its lowest since August 17. Volumes were heavy at Rs 14,040 crore ($3 billion) on RBI’s trading platform.

The one-year swap rate ended down 2 basis points at 6.08% after easing to 6.05, its lowest since July 27. The five-year swap rate shed 8 basis points to 6.88%, after easing to 6.85%, its lowest since July 20.

“South Korea did not hike rates and the general sense is that inflation (in India) has peaked, but the monthly inflation data will be key,” said Anindya Das Gupta, head of treasury at Barclays Capital.

The result of the Rs 11,000-crore bond sale was in line with market expectations, traders said. The government may continue to issue more of the current 10-year benchmark 7.80% 2020 bond for the rest of the current financial year.

The finance ministry official’s statements also supported the demand for the benchmark bond as there were concerns earlier that it would become illiquid. In interest rate futures on NSE, the September contract implied a yield of 7.97% while the December contract was not traded.