10-year bond yield crosses 7% as RBI trims auction bids
Bidders likely sought more than what the central bank was willing to pay.
The RBI accepted bids worth only ₹4,505 crore for the 6.20% 2029 bond, just about 40% of the notified amount of ₹11,000 crore. The cut-off yield was 6.40%.
On Friday, benchmark government bond yields climbed by five basis points, surpassing the 7% threshold. The Reserve Bank of India managed to accept less than half of the amount it had targeted in a three-year bond auction. Factors such as high global risk-free rates and escalating crude oil prices are exerting pressure on Indian bonds.
Yields of the benchmark 10-year government bond closed at 7.02%, its highest level since June.
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It had previously closed at 6.97%. High global risk-free rates and an increase in crude oil prices put pressure on Indian bonds, traders said.
Brent crude oil futures were trading around $105 per barrel on Friday, while US Treasury yields rose to multi-year highs at 4.95%.”Bond yields typically move in tandem with oil prices. Currently, the rise in yields is being capped due to excess liquidity in the banking system,” said Alok Singh, head of treasury, CSB Bank.
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The banking system is currently flush with liquidity, driven by inflows under the FCNR(B) scheme. The daily average surplus in September so far is ₹10.25 lakh crore. The daily average was at ₹3.67 lakh crore in August and ₹1.07 lakh crore in July.
Indian debt has outperformed most global peers since the US war on Iran began in February, supported by central bank measures to attract dollar inflows.
However, market participants expect yields to increase going ahead, as the banking system’s liquidity surplus may be masking underlying bearish sentiment in the bond market, with investors expecting tighter monetary policy in the near future, traders said.
