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    Benchmark yield slips to 7-month low

    Synopsis

    On Monday, yield on the 10-year benchmark government bond eased 6 basis points to settle at 7.10%, the lowest closing level for the benchmark yield since September 13. The yield on the most liquid bond in the secondary market also slid to its lowest levels since September, registering a fall of five basis points.

    Bond yieldsGetty Images
    According to Naveen Singh, head of trading at ICICI Securities Primary Dealership, firm demand for longer-tenure bonds from certain banks on behalf of insurance companies had also added to the downward pressure on yields.
    Mumbai: Indian bond prices surged on Monday, pushing down yields on the 10-year benchmark paper to a seven-month low, as traders scrambled to pick up sovereign debt after a primary sale on Friday witnessed unusually strong demand.

    "The auction demand surprised many people. This is in an environment where traders were running short as we saw in the repo market. There was serious demand at the auction, which effectively left all the short positions uncovered," said Nitin Agarwal, India head of trading at ANZ.

    On Monday, yield on the 10-year benchmark government bond eased 6 basis points to settle at 7.10%, the lowest closing level for the benchmark yield since September 13. The yield on the most liquid bond in the secondary market also slid to its lowest levels since September, registering a fall of five basis points.

    A fall in government bond yields translates into lower borrowing costs in the broader economy as sovereign debt is the benchmark for pricing debt issued by corporate entities. At present, the erstwhile 10-year bond narrowly outstrips the recently-introduced new benchmark paper in trading volumes. Bond prices and yields move inversely.

    "The fundamental view across the market is still this - bond supply will start to weigh on the market. There is a huge supply. All said and done, the central bank has indicated a pause, they haven't indicated rate cuts," Agarwal said.

    Amid lingering uncertainties over the future course of monetary policy, the sharp fall in yields on Monday was largely attributable to the nature in which trading positions had been built up over the past week.
    Benchmark Yield Slips to 7-Month Low


    AUCTION RUSH

    On Friday, the government sold three securities worth a total of ₹33,000 crore in a primary auction. The cutoff prices set for the papers were higher-than-expected, signaling robust demand for the government's debt offering.

    Moreover, the auction received bids worth more than three times the notified quantum of securities up for sale, a higher degree of buying interest than usually experienced. Traders who were acting on the broader view of demand being tempered by a huge quantum of government borrowing lined up were caught unawares by the response at the auction.

    "This was the fundamental view with which traders were running short. It is still the medium-term view, but the problem with medium-term views is that they are open to hiccups and that is what happened," Agarwal said.

    Dealers who had taken short positions - betting on a fall in prices - were compelled to square off those positions by buying bonds once prices surged. The accumulated buying interest pushed yields past successive technical levels.

    According to Naveen Singh, head of trading at ICICI Securities Primary Dealership, firm demand for longer-tenure bonds from certain banks on behalf of insurance companies had also added to the downward pressure on yields.




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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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