Bonds decline for the second day ahead of debt auction

Ten-year bonds dropped for a second day before a sale of `12,000 crore ($2.6 billion) of government securities on Friday, which may leave investors with less cash to buy debt.

The government is scheduled to sell notes maturing in 2017, 2022 and 2040, according to RBI. The auctions are part of government’s record `4.57 lakh crore borrowing programme for the fiscal that began April 1.

The yield on the 7.8% bond due in May 2020 rose 2 basis points to 7.98% at the close of trade on Thursday. The price fell 0.11, or 11 paise per `100 face amount, to 98.8. A basis point is 0.01 percentage point.

The bond yield may move between 7.95% and 8.00% until the next policy review on September 16, Verma said. The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, was little changed. The rate, a fixed payment made to receive floating rates, was at 6.17%.