After falling for two days in a row, the yields on government bonds rose sharply on Thursday amid profit booking by traders. Yields rose 3-5 basis points after falling over 5 basis points in the last two trading sessions. The most traded bond 5.63%-2026 ended at 5.6814%, almost 5 basis points higher than its previous close on Tuesday. The 6.64%-2035 bond ended at 6.7770%, compared to 6.7477% in the previous trading session.
“Bonds have shown a typical response from what the global market has shown like US yields moved up almost 10 basis points and oil prices have also risen that led to profit booking or sell-off in the market on Thursday,” said Mahendra Kumar Jajoo, chief investment officer, fixed income, Mirae Asset Investment Managers (India).
On Wednesday, yields on the 10-year US Treasury rose to 1.3%, after falling to 5-month low. This was because the rising Covid-19 infections due to the Delta variant has dampened the sentiments and clouded prospects of an economic recovery.
Brent crude oil prices in the international market have inched up despite the rise in oil Inventories from the US and weak demand due to rising infections. Market participants said the rise in oil prices is normal trading volatility as it was expected to go up a bit after sharply falling in the past few days.
By the end of trading session on Thursday, Brent crude was trading at $72.65 a barrel, up 42 cents or 0.58% for contract maturing in September 2021. Since the start of this week, oil prices have been falling after a deal by OPEC+ to increase supply from August.
Dealers with state-owned banks are expecting the yield on 10-year benchmark to rise marginally on Friday due to supply concerns from weekly bond auction.
The central bank’s weekly bond auction on Friday will raise Rs 14,000 crore through sale of 10-year bonds. Another Rs 3,000 crore and Rs 9,000 crore will be raised by selling 4.26%-2023 and 6.76%-2061 bonds, respectively.
“The 10-year bond yield is going to remain range bound after the weekly bond auction, as for now we are expecting status quo in the policy,” said Lakshmi Iyer, CIO-fixed income and head-products at Kotak Mahindra Asset Management Co.
The G-SAP 2.0 auction on Thursday got fully subscribed, with amount offered by traders touched almost Rs 50,000 crore. The central bank purchased Rs 7,225 crore of 6.97%-2026 bonds at cut-off price of Rs 104.52 or 5.9312% yield and Rs 7,384 crore of 6.79%-2029 bonds at cut-off price of Rs 101.85 or 6.5003% yield.
It has also purchased 6.18%-2024 bonds worth Rs 2,523 crore and 8.60%-2028 bonds worth Rs 2,868 crore.
Dealers with state-owned banks expect the announcement of another G-SAP 2.0 auction will occur in the next week.