Bonds stay unchanged ahead of debt auction this week

The 10-year bonds were little changed, with yields near the highest in more than a week, before a debt auction later this week.

The government plans to raise 63% of its full-year borrowing target in the first half of the year started April 1, raising concerns that supply of debt will overwhelm demand. The finance ministry said last week it plans to sell $2.7 billion of bonds on April 9.

“The sentiment is a bit cautious because a large supply of bonds has to be accommodated,” said S Srikumar, chief of fixed-income at state-owned Andhra Bank in Mumbai. “The movement in yields will be based on the outcome of the upcoming debt sales.”

The yield on the 6.35% note due January 2020 was little changed at 7.8% at close of trade on Tuesday. The price per Rs 100 face amount was at 90.23.

The government will offer to sell Rs 5,000 crore each of securities due in 2012 and 2020 and Rs 2,000 crore of notes maturing in 2027.

The government is scheduled to sell at least Rs 11, 000 crore of securities every week till July 16, according to its schedule of debt sales released on March 29. It is also scheduled to sell at least Rs 7,000 crore of treasury bills every week between April and June.

The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, increased. The rate, a fixed payment made to receive floating rates, rose to 6.91% from 6.89% on Monday.