Govt bond yields reverse all losses on lower H2 borrowing speculation

Rupee ends close to all time low

Government bond yields reversed all losses and settled lower on Tuesday on speculations of a reduction in the government's borrowing in the second half of the current financial year, dealers said. The fall in US Treasury yield further weighed on the yields.

The yields rose in early trade, tracking a rise in US Treasury yields. The domestic benchmark yield touched the day's high of 7.18 per cent.

The yield on the benchmark 10-year bond settled at 7.14 per cent on Tuesday, against 7.15 per cent on Monday.

The yield on the benchmark 10-year US Treasury note rose up to 4.57 per cent during the day.

 

"There are rumours in the market that there might be a borrowing cut in the second half; that's why there was some rally during the closing hours," a dealer at a state-owned bank said. "Because of that, there was some receiving in the swap market also," he added.

The five-year overnight indexed swap rate settled at 6.74 per cent on Tuesday, against 6.78 per cent on Monday.

However, a segment of the market is not expecting any reduction in borrowing. "The market is thinking that the government is getting more funds from small savings schemes, but we are seeing the Rs 30,000 crore extra expense because of gas subsidy, and they received Rs 20,000 crore less than the budget estimate after the selling of PSUs," a dealer at another state-owned bank said. "We don't think they are going to reduce the borrowing; even if they want to, it will only happen in the last quarter, and it won't be announced in the borrowing calendar," he added.

According to the existing schedule, the central government aims to borrow Rs 15.43 trillion through bond sales in the current financial year, with approximately 42 per cent of this amount planned to be borrowed during the October-March period.

Meanwhile, the rupee depreciated on Tuesday due to the rise in US Treasury yields. It settled at Rs 83.23 a dollar, against Rs 83.15 per US dollar on Monday.

"USDINR spot closed 8 paise higher at 83.23. Since mid-August, volatility has come down dramatically in USDINR, and the pair has been largely oscillating within a narrow range of 82.70 and 83.30 on spot. We expect the range to break soon and volatility to increase. If the global cues of rising US interest and strong US dollar remain, then the risk of an upside breakout will be higher than a downside breakdown. We expect an overall range of 82.80 and 83.30," said Anindya Banerjee, VP - Currency Derivatives & Interest Rate Derivatives at Kotak Securities Ltd.

The unit hit an all-time closing low on 18 September when it ended the day at Rs 83.27 per dollar.

The rupee has depreciated 1.27 per cent against the dollar in the financial year so far and 0.54 per cent this month.