Bond yields retrace from highs, but mood bearish

Bond yields retraced from the day’s highs and ended steady as some value buying emerged in late trade.

However, sentiment remained bearish on expectations of more rate hikes as early as next month due to high inflation, which had pushed yields up sharply earlier in the day.

Market will now wait for the cut-offs at a $1.3 billion auction due on Friday for the next cue on interest rates. “The only factor we will look at the auction tomorrow is the cutoff yield. If it comes well above market level, then there will be more sell-off ,” said GA Tadas, managing director and chief executive officer at IDBI Gilts.

The government will auction Rs 2,000 crore ($443 million) each of 7.17% bonds due 2015, 8.08% 2022 bonds and 8.30% 2040 bonds. Traders on Thursday sold these bonds so that they can buy them at the auction at a lower price. The yield on the most-traded 8.13%, 2022 bond ended up one basis point on the day at 8.02%, after rising to a day’s high of 8.05%.

Tadas expects the 2022 bond to move in 8.01-8 .05% on Friday. The less liquid benchmark 10-year federal bond yield ended at 7.93%, down one basis point from Wednesday, but off the day’s high of 7.97%.