MUMBAI: Federal bond yields crawled near one-year lows on Tuesday as traders speculated on the likelihood of a rate cut at the central bank's policy review on Jan. 29. At 9:25 a.m., the 10-year bond yield was at 7.54 percent, steady from Monday's close. It fell to 7.51 percent on Friday, its lowest since January 2006. Total volume was a 4.95 billion rupees ($126 million) on the central bank's electronic platform.
"Yields are moving sideways around these levels as a 25 basis point repo rate cut is factored in at these levels," said Vikas Anand Naik, senior manager at Mumbai-based Dena Bank. "If the rate cut is around 50 basis points, then we may see bond yields rallying more," he said.
The 10-year bond yield fell 16 basis points last week and is now 36 basis points down from mid-December. Bonds have rallied as cash conditions in the banking system improved and as speculation grew of a likely rate cut due to low inflation and economic data.
Traders said a robust pipeline of supplies this week was helping keep bond yields in a tight range. The central bank will auction 65 billion rupees of treasury bills on Wednesday and will sell 40 billion rupees of market stabilisation scheme bonds on Thursday, the first MMS bond sales since early November.
It sold 208 billion rupees worth of bonds and bills last week. ICICI Bank expects the 10-year yield to remain within the 7.50-7.60 percent band with yields on an upward bias due to the fresh supplies. Spreads between the 1-year and 10-year bonds contracted to 24 basis points on Monday from 26 basis points on Friday, according to IDBI Gilts.
"Yields are moving sideways around these levels as a 25 basis point repo rate cut is factored in at these levels," said Vikas Anand Naik, senior manager at Mumbai-based Dena Bank. "If the rate cut is around 50 basis points, then we may see bond yields rallying more," he said.
The 10-year bond yield fell 16 basis points last week and is now 36 basis points down from mid-December. Bonds have rallied as cash conditions in the banking system improved and as speculation grew of a likely rate cut due to low inflation and economic data.
Traders said a robust pipeline of supplies this week was helping keep bond yields in a tight range. The central bank will auction 65 billion rupees of treasury bills on Wednesday and will sell 40 billion rupees of market stabilisation scheme bonds on Thursday, the first MMS bond sales since early November.
It sold 208 billion rupees worth of bonds and bills last week. ICICI Bank expects the 10-year yield to remain within the 7.50-7.60 percent band with yields on an upward bias due to the fresh supplies. Spreads between the 1-year and 10-year bonds contracted to 24 basis points on Monday from 26 basis points on Friday, according to IDBI Gilts.
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