Government securities rose for the second straight session on Tuesday, after the Reserve Bank of India hinted that its 25 bps rate hike could possibly be its last in the current interest rate cycle, although any reprieve for bonds is seen as temporary given the supply lined up.
The benchmark 7.80 per cent 2021 bond rose to Rs 93.91 from Rs 93.57 at Monday's close. The 10-year benchmark bond yield ended 6 basis points (bps) lower on the day at 8.76 per cent after touching the day's low of 8.67 per cent following the 25-basis-point rate increase.
“The bond markets are cheering the RBI's move. However, from a long term point of view yields are expected to rise marginally. But, as of now the outlook is positive,” said Ms Meghna Patel Shah, Senior Manager - Fixed Income, Emkay Global Financial Services Ltd.
However, concerns of oversupply pulled the benchmark bond down from its intraday high of Rs 94.45 as higher-than-expected underwriting commission cut-offs for an upcoming bond auction resulted in a bout of profit-taking.
The RBI sold Rs 8,000 crore worth treasury bills on Tuesday and is scheduled to sell Rs 15,000 crore worth government bonds on Friday.
“RBI's indication of the end of the rate hike has comforted the market. The 10-year government bond yields will be in the range of 8.65 to 8.80 per cent. If the Government announces additional borrowing, it will exert supply pressure and a bearish view in the market,” said Mr Mohan Shenoi, Treasurer, Kotak Mahindra Bank.
Bond yields have been under intense upward pressure since late September after the Government announced that it would borrow Rs 2,20,000 crore in October-March against a budgeted Rs 1,67,000 crore.
Rupee
In the currency markets, the rupee on Tuesday appreciated further by 32 paise to settle at 49.5051 against the US currency following sustained dollar selling by exporters and sharp rise in local equities. The RBI's rate increase also weighed on the dollar on expectations of a rise in capital inflows.
The dollar was at 49.50 in late trade, down from 49.82 on Monday.