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Bond yields spirals up in light volume on Friday

25 Nov 2011 Evaluate

Bond yields spiraled up in light volume on Friday as boost from a buyback proved to be short lived after traders began paring positions, in order to make room for Rs 13,000 debt sale, in the latter half of the day. Tight cash conditions and heavy supplies of debt in coming weeks are expected to keep yields ranged with an upward bias. However, losses in Asian equity markets and better than expected buyback results has limited a sharp rise in bond yields.

On the global front, markets in US were closed for Thanksgiving Day holiday on Thursday. Meanwhile, Asian shares and the euro both hovered near seven-week lows on Friday as European officials failed to soothe investor fears that the euro zone's debt crisis could trigger a credit crunch if funding costs run out of control.

The yields on 10-year benchmark 8.79% - 2021 bonds 2021 bonds were trading 8.81% from Thursday's close of 8.79%.

The benchmark five-year interest rate swaps were trading at steady at Thursday's close of 7.31%.

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.

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