Bond yields end down; market mood upbeat

Indian federal bond yields and swap rates extended their fall for the second trading session on Monday as sentiment remained buoyant following a central bank deputy governor’s comments on inflation on Friday. The 10-year benchmark bond yield ended down two basis points on the day at 7.81%, and off the day’s low of 7.77%, its lowest since July 30. The 10-year bond moved in a band of 7.77% to 7.82% in the day. Volumes were a heavy Rs 13,950 crore ($3.02 billion) compared with Friday’s Rs 10705 crore on the central bank’s trading platform.

Reserve Bank of India deputy governor Subir Gokarn said on Friday that adequate measures had been taken to contain inflation and that food prices would begin to ease on the back of good monsoon rains. “The statements gave some relief, there was a soothing effect. It has helped in containing the spike in yields,” said Manish Wadhawan, director and head of rates at HSBC India in Mumbai.

The 5-year overnight indexed swap rate ended at 7.24% down from its previous close of 7.29% while the one-year rate ended at 6.25%, flat from its previous close. The 5-year swap had touched a low of 6.22% intra-day and 1-year at 7.20%. However, worries over the Rs 12,000 crore bond auction due on Friday triggered profit selling in late trade. “Yields may remain under pressure due to continuous supply. I expect 10-year to move in 7.80-7.85% band on Tuesday,” HSBC’s Wadhawan said.

Besides the auction announcement, bonds are expected to take early cues from overnight movement of US Treasuries. Dealers said they will also watch the US Federal Reserve’s rate decision at its policy-setting meeting on Tuesday for fresh cues.