The yields on the new 10-year benchmark 6.10%-2031 bond ended marginally higher on Tuesday on supply concerns, but any further rise has been capped due to easing oil prices and fall in US Treasury yields, dealers said. The 10-year bond ended marginally lower than Friday’s closing.
However, the other bonds ended almost flat on Tuesday due to lack of fresh triggers as traders are waiting for the guidance of the central bank in the monetary policy. The most traded bond 5.63%-2026 and 6.64%-2035 bonds ended at 5.7336% and 6.8142%, respectively. “The market is on the backfoot due to uncertainty about the policy that what RBI will communicate on the inflation front. This communication will be a key driver for the market,” a fund manager with mid-sized fund house said.
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Market participants expect that the Reserve Bank of India (RBI) will increase its inflation forecast after an unexpected rise in inflation to 6.30% in May from 4.23% in April and 6.26% in June. “In the upcoming policy we expect a status quo on rates and stance, the focus will be on the underlying tone of the RBI-MPC statement, given the increasing risks to inflation. For now, we expect the RBI to revise its inflation outlook trajectory by 30-50 bps across quarters,” said Upasna Bhardwaj, senior vice president, Kotak Mahindra Bank said in a report.
After market hours on August 2, the central bank had announced weekly bond auction, which included a sale of 6.10%-2031 worth Rs 14,000 crore, of the total Rs 26,000 crore. It will also sell 4.26%-2023 and 6.76%-2061 bonds worth Rs 3,000 crore and Rs 9,000 crore, respectively.
On August 6, there will be another auction for the new 10-year benchmark 6.10%-2031 bonds. An earlier auction was conducted on July 9, where the central bank set 6.10% yields and the second auction on July 23, which saw a huge devolvement on Primary Dealers.
Any further rise in yields have been capped by the fall in crude oil prices in the international market on Tuesday. The Covid Delta variant, widely spreading in major oil consuming countries, is putting pressure on prices. By the closing of market hours, Brent crude oil prices were trading at $71.16 a barrel, down $1.73 or 2.37%, for the contract maturing in October.