Bond yields up a tad, new 10-year paper in demand

Bond yields ended marginally up, apart from the newly auctioned 10-year bond, as profit taking kicked in after the sharp rally in recent weeks.

The yield on the most traded 7.02%, 2016 bond ended up one basis point on the day at 7.56% after moving in a band of 7.53-7.58% during the day. The yield on the benchmark 10-year bond was also up one basis point on the day at 8.05%. It moved in a band of 8.03-8.08%.

The yield on the new 10-year bond, that was auctioned on Friday, was down two basis points on the day at 7.74% on expectations it would replace the current benchmark bond. Volumes were a heavy Rs 9,595 crore ($2.2 billion) on the RBI trading platform.

The 2016 bond yield fell by 14 basis points since the announcement of the annual monetary policy on April 20 as dovish comments from central bank officials and government diluted concerns of an inter-meeting policy action.

Bond yields moved in a narrow band during the day as dealers awaited details of securities that would be sold as part of this week’s $3.4 billion bond auction.

“The next auction announcement is what traders are awaiting currently, which will dictate further market direction,” said Bekxy Kuriakose, head of fixed income at L&T Investment Management.

The government plans to sell Rs 15,000 crore of bonds this week. After market hours, the central bank said it will auction Rs 5,000 crore each of the 7.02% bonds maturing in 2016 and 8.20% bonds maturing in 2022. It will also auction Rs 3,000 crore of the 8.26% 2027 bond and Rs 2,000 crore of the 8.32% 2032 bond on Friday.