10-yr bond yield sees biggest single-day fall in three months - Livemint

India met its target to sell Rs.20,000 crore of notes due between 2022 and 2043 Thursday at maximum yields from 9.16% to 9.31%. Photo: Mint

Mumbai: India's 10-year benchmark bond yield fell the most in a single day in three months on Thursday, after the central bank fully sold Rs.20,000 crore worth of bonds on offer, accomplishing the country's biggest debt auction.

The 10-year benchmark bond yield ended down 11 basis points at 8.85%, the biggest single-day fall since 20 January when it had fallen by a similar quantum.

The cutoffs for the auction were also better than expected, indicating healthy demand. Concerns about how India would accomplish the debt sale had hit bonds this week, while holidays on Monday and Friday left only three trading sessions.

Still, four dealers cited widespread market speculation that Life Insurance Corporation of India (LIC) had bought a significant chunk of the debt at the auction. Details on buyers are not publicized, and LIC was not immediately reachable for comment.

However, traders added bonds would likely remain under pressure given the debt supply will continue, while investors are also likely to stay cautious ahead of the outcome of the elections next month.

These two factors will likely remain key in the markets as the Reserve Bank of India (RBI) will not set policy until early June.

"There could be some trading opportunity to make profits but I am not too sure of buying continuing because the (RBI's) monetary policy stance is still status quo and there is not much scope for the 10-year bond yield to further come down," said Mohan Shenoi, treasurer at Kotak Mahindra Bank Ltd.

Traders also suspect that RBI bought significant amount of bonds on Tuesday after data from the electronic trading platform showed the "Others" category, which RBI is a part of, showed net purchases of Rs.3,277 crore.

After Thursday's auction, Rs.3.16 trillion worth of gross borrowing remains during the April-September period. However, the figure may change after a government is elected next month.

Earlier on Thursday, Standard and Poor's said it may upgrade India's outlook if the government that is elected next month addresses some of the country's fiscal and economic challenges through steps such as passing a goods and services tax.

In the overnight swaps market, the benchmark five-year rate fell 7 basis points to end at 8.44%, while the one-year rate ended down 2 basis points at 8.58%. Reuters

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