MUMBAI: Indian government bonds slumped on Monday after a record state borrowing calendar prompted a selloff, widening the gulf between supply and demand.
The benchmark 10-year yield settled at 6.6331% on Monday. It had ended at 6.6062% on Friday.
Bond yields rise when prices fall.
States are set to raise 5 trillion rupees ($55.40 billion) through bond sales between January and March, their biggest quarterly borrowing on record, and will auction 301 billion rupees worth of bonds on Tuesday.
Traders said the supply surge has hit a market in which investors are reluctant to build positions as expectations for further rate cuts have faded and liquidity remains tight, even after record central bank bond purchases.
Foreign banks turned net sellers last week, offloading 110 billion rupees of bonds, their biggest weekly sale in nearly seven months, CCIL data showed.
However, mutual funds still saw value and lapped up debt worth 93 billion rupees in the first two sessions of January.
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Meanwhile, the Reserve Bank of India continued its open market purchases as banking system liquidity stayed constrained, with average daily surplus sliding to 614.4 billion rupees as of January 2 from 726 billion rupees in December and 1.78 trillion rupees in November.
The RBI bought bonds worth 500 billion rupees earlier in the day, at higher-than-expected cut-off yields, traders said, pumping cash into the system.
“The 6.70% level on the 10-year yield should see some resistance as RBI continues its open market purchases to ensure that short dollar positions do not evaporate liquidity,” Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors, said.
Rates
India’s overnight index swap rates rose on Monday, as rising supply pressure weighed on bonds.
The one-year OIS rose 1 bp to 5.4850% and the two-year OIS rate ended 1 bp higher at 5.5850%. The five-year OIS rate was up 1.5 bps at 5.9750%.
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