Yields hold near lowest level recorded this year

Eleven-year bond yields held near this year's lowest level on speculation demand for the securities will improve as the government reduces debt sales.

The government plans to borrow 4.17 lakh crore ($93 billion) in the fiscal year beginning April 1, down from an estimated 4.47 lakh crore this year, Finance Minister Pranab Mukherjee said February 28. Average daily borrowings by banks from the Reserve Bank of India declined to 58,000 crore this month from 77,900 crore in February and 91,300 crore in January, data from the Reserve Bank of India show, indicating cash availability at banks is increasing.

"The government bond market is expected to trade on a positive note over the coming fortnight in the absence of immediate debt supply and in light of the lower borrowing target for the next fiscal year," said Namrata Padhye, a Mumbai-based economist at IDBI Gilts, a primary dealer that underwrites government debt. "Falling cash infusions by the central bank indicate an improvement in liquidity."

The yield on the 8.08% note due August 2022 was at 8.07% at the close of trade on Wednesday, compared with 8.06% on Tuesday, which matched this year's lowest closing level, according to RBI's trading system.

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 7.39%.