Bond yields end near steady in dull trade

Yields ended little changed on Tuesday, but off lows touched over RBI’s decision to buy up to $2.7 billion of bonds on Wednesday, after moving in a narrow range in the absence of any fresh trigger. The most-traded 8.13% 2022 bond ended at 7.99%, after moving in a band of 7.97-8 .00% and down 1 basis point from its Monday’s close.

The less liquid benchmark 10-year bond yield ended at 7.90%, versus 7.91% on Monday. It moved in 7.86-7 .90% intra-day . Total volume traded was a moderate . 6,625 crore ($1.46 billion). While the 2022 bond had risen to a recent high of 8.22% on December 8, the 2020 bond had touched a 26-month high of 8.22% on December 6.

The initial momentum over RBI’s bond purchase announcement did not last through the day as traders were not too hopeful the central bank would buy large amounts of the liquid bonds widely held by the market. Dealers expect the OMO cut-off yields to be 3-4 bps lower than the market levels on Wednesday. However, downside to the bond yields will be limited due to the persistent tight cash conditions.

Overnight indexed swaps tracked government bonds in the day, with the shorter-end staying up on tight cash worries. The benchmark five-year swaps ended at 7.68%, down 4 bps from Monday, It moved in the 7.68-7 .73% range intra-day . The one-year swap ended at 7.08, up 2 bps on the day after touching 7.10%, its highest since October 15, 2008. It fell to 7.02% in early trade.