Bond yields trade largely steady on Tuesday

Bond yields were trading steady on Tuesday as positive sentiment due to the sale of floating rate bonds in this week's debt auction was offset by the caution exercised before details of the central bank's open market operations are known. Market participants are keenly watching for the securities that the central bank chooses to buy back under OMO, which could determine its success. Floating rate bonds are expected to see good demand as they get market related coupon and are re-priced at regular intervals.

On the global front, ten-year treasury notes were unchanged on Tuesday from late US levels, supported by persistent worries about Europe's sovereign debt woes and a flight out of risk assets. A US bipartisan deficit-reduction committee admitted defeat on Monday as expected, abandoning a three-month effort to find $1.2 trillion in budget cuts, but both Standard & Poor's and Moody's Investors Service said failure to agree on a plan would not by itself trigger a ratings downgrade. Meanwhile, Brent crude held near $107 a barrel on Tuesday as fresh sanctions, and the prospect of military action, against Iran offset persistent worries about the health of Western economies and fuel demand.

The yields on 10-year benchmark 8.79% - 2021 bonds 2021 bonds were trading tad higher at 8.85% from its previous close of 8.83% on Monday.

The benchmark five-year interest rate swaps were trading at 7.29% from Monday’s close of 7.35%.

The Government of India has announced the sale of three dated securities for Rs 13,000 crore on November 25, 2011, which includes (i) “Floating Rate Bond 2020” for a notified amount of  Rs 3,000 crore (nominal) through price based auction. The variable interest rate for payment of interest on FRB 2020 will be the average of the implicit yields at cut-off prices of last three auctions of Government of India 182 day Treasury Bills. The reset of variable interest rates will be made semi-annually and will be announced by the Reserve Bank of India on or before the commencement of the respective coupon periods. (ii) “9.15 percent Government Stock 2024” for a notified amount of Rs 6,000 crore (nominal) through price based auction and (iii) “8.30 percent Government Stock 2040” for a notified amount of   Rs 4,000 crore (nominal) through price based auction. The auctions will be conducted using uniform price method.

The Reserve Bank of India has announced the auction of 91-day and 182-day Government of India Treasury Bills for notified amount of Rs 4,000 crore each. The auction will be conducted on November 23, 2011 using 'Multiple Price Auction' method.

Eleven State Governments have announced Auction of State Development Loans 2021 for Rs 5860.000 crore on November 22, 2011.

Also, consistent with the stance of monetary policy and based on the current assessment of prevailing and evolving liquidity conditions, the Reserve Bank of India has decided to conduct Open Market Operations (purchase of government securities) for an aggregate amount of  Rs 10,000 crore on November 24, 2011.