The yield on the 10-year government paper, which touched 8.13 per cent in morning trades, eased on lower headline inflation for March and a smooth sailing for a bond auction on Thursday.
The yield on the benchmark (6.35 per cent 2020) was around 8.09 per cent in opening trades. It moved up to a high of 8.13 per cent, before easing by 4-5 basis points. At the close, the yield stood at 8.08 per cent, according to the Negotiated Dealing System data.
The chief dealer with a public sector bank said inflation for March at 9.9 per cent was lower than the estimate of 10.4 per cent. It was a psychological positive for the market, resulting in lowering of the yield. Also the cut-off at bond auction, which went off smoothly, unlike the previous one, was in line with market expectations.
On Friday, RBI had set higher cut-off for the 10-year government bond. There was devolvement at the very first bond auction, pushing the yield by about 22 basis points. The closing yield on the benchmark was 8.01 per cent, against 7.79 per cent on the previous day. The underwriters had to buy bonds worth Rs 448.54 crore.
On Thursday, at the second auction of the financial year, the Reserve bank of India sold bonds worth Rs 13,000 crore. The cut-off point for the 12-year paper (8.20 per cent 2022) was set at 8.33 per cent. Other two bonds sold were 7.38 per cent 2015 paper and 8.28 per cent 2032 paper.
Dealers said though the inflation (wholesale price index, or WPI) number was less than the estimate, there was upward revision in WPI for February. The inflation rate stood at 9.89 per cent in February and 1.20 per cent during the corresponding period in 2009.
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Analysts were expecting the rise in fuel prices during the month due to announcements made in the Budget in February coupled with high food inflation would push inflation over the double-digit level.
Besides inflation, the huge borrowing plan would continue to exert pressure on bond yields, said the head of treasury with a large public sector bank. The government plans to complete as much as 63 per cent of its annual borrowing of Rs 457,000 crore by the end of September 2010.