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Bond yields edge higher on cash-tightening fears

25 Feb 2014 Evaluate

Bond yields were trading higher to an eight-week high on Tuesday as investors were cautious ahead of an Rs 85.30 billion ($1.37 billion) sale of state loans later in the day. Low liquidity and lack of buying support due to rise in borrowing costs is likely to keep Bond prices subdued. Further, bond sales by mutual funds are also pushing yields up. The benchmark yield are likely to be in a range of 8.85 to 8.95% in the near term.

Cash is expected to tighten ahead of advance tax outflows due by mid-March. Meanwhile, a recent report by the Reserve Bank of India on pricing benchmarks has recommended that in the absence of required trading volume in state development loans (SDLs), the spread discovered in the last two SDL auctions, subject to appropriate qualifying criteria, may be used in place of the existing fixed 25 bps spread.

On the global front, U.S. Treasuries prices fell on Monday, with some investors exiting the safe-haven asset class as Wall Street swung higher and worries dwindled about troubled developing economies such as Ukraine. Meanwhile, Brent futures eased on Tuesday on expectations that U.S. crude stocks were set to show a rise for a second straight week, but held above $110 a barrel on concerns over shortages following prolonged production outages in Libya and other exporters.

The yields on new 10 year Government Stock 2023 were trading 1 basis point higher at 8.90% from its previous close of 8.89% on Monday.

The benchmark five-year interest rate swaps were trading 2 basis points higher at 8.55% from its previous close of 8.53% on Monday.

Reserve Bank of India has announced the auction of 91 and 182-days Government of India Treasury Bills for notified amount of Rs 7,000 crore and Rs 6000 crore respectively. The auction will be conducted on February 26, 2014 using 'Multiple Price Auction' method.

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