10-year bonds slide on RBI's plan to sell debt

Government bonds fell, pushing the 10-year yield up by the most in two weeks, on speculation a central bank plan to sell debt will damp demand for existing notes.

The Reserve Bank of India (RBI) will auction Rs 10,000 crore ($1.6 billion) of sovereign securities via open-market operations on July 14, it stated after the close of markets Friday.

The yield on the bonds due May 2025 climbed seven basis points to 7.87 per cent in Mumbai, according to prices from the central bank's trading system. That's the biggest increase for benchmark 10-year debt since June 29.

"The RBI's decision to sell bonds is to suck out excess liquidity from the financial system," said Ajay Manglunia, head of fixed income at Edelweiss Financial Services Ltd in Mumbai.

The central bank's worry is that excess money might fuel inflation, he said.