Bond yields drop on rising hopes of OMOs

Bond yields edged lower on hopes of an open market operation (OMOs) during the week with steep rise in repo borrowings to Rs 1.33 trillion on Tuesday. Moreover, Reserve Bank of India’s (RBI) statement that it will support liquidity by doing OMOs as and when warranted counterbalanced some of the disappointment from its decision to keep interest rates on hold. Further, the government plans to sell Rs 15,000 crore in debt this week, including additional 9.15% 2024 bonds, after skipping an auction last week.

On the global front, US Treasury debt prices mostly fell on Monday, while long bonds gained in choppy trading and light volume, as investors shrugged off Greece's election results and waited for a Federal Reserve meeting this week for signs of new stimulus measures. Meanwhile, Brent crude prices fell on Monday to 16-month lows as pressure from the broad euro zone debt crisis and fading expectations for coordinated central bank action erased early gains derived from the pro-bailout election result in Greece.

Back home, the yields on 10-year benchmark 8.79% - 2021 were down 4 basis points at 8.39% after yields rose 9 basis points on Monday.

The benchmark five-year interest rate rose 2 basis points to 7.29% from its previous close.

In partial revision to the earlier five state governments’ auction, namely Andhra Pradesh, Jharkhand, Haryana, Tamil Nadu and Uttar Pradesh, the government of West Bengal has also announced the sale of its 10-year State Development Loan (SDL) for an aggregate amount of Rs 500.00 crore. Accordingly, now the following six state governments will be selling their 10-year state development loans (SDLs) for an aggregate amount of Rs 4,450.00 crore through yield based auction using multiple price auction method. The auction will be conducted by the RBI on June 19, 2012.

The Government of India announced the sale of four dated securities for Rs 15,000 crore of (i) “8.19 percent Government Stock 2020” for a notified amount of Rs 4,000 crore (nominal) through price based auction; (ii) “9.15 percent Government Stock 2024” for a notified amount of Rs 7,000 crore (nominal) through price based auction; (iii) “8.28 percent Government Stock 2027” for a notified amount of Rs 2,000 crore (nominal) through price based auction; and (iv) “8.83 percent Government Stock 2041” for a notified amount of Rs 2,000 crore (nominal) through price based auction. The auctions will be conducted using uniform price method by the RBI on June 22, 2012.