Benchmark bond yields have risen by 5 basis points over the past two days due to supply pressures at the expense of the weekly bond auction amid the possibility of a December policy reverse repo rate hike. The benchmark bond yield ended at 6.10%-2031 at 6.3880% on Friday, versus 6.3670% on Thursday.
Market time was extended twice by 30 minutes on Friday due to the late announcement of the weekly bond auction.
The Central Bank accepted all bids worth Rs 24,000 crore on three bonds offered for sale. Reserve Bank of India GOI FRB 2028, 6.10%-2031 and 6.76%-2061 are offered for sale in the weekly auction. The cut was in line with market expectations.
The market is expecting a rise in the reverse repo rate in December policy after the central bank raised the amount of reverse repo auctions, resulting in higher fixed income rates such as OIS rates and other short-term rates. This was supported by the higher interest rate cut set by the central bank in reverse repo auctions.
Reducing the overnight liquidity surplus also affects the bond yield,” said Pankaj Pathak, fixed income fund manager at Quantum Asset Management.
Traders are concerned that the central bank is adjusting liquidity by conducting VRRR auctions. Market players expect the central bank to raise the reverse repo rate by 15 basis points in December policy. At present, the liquidity in the banking system is estimated at a surplus of about Rs 7 crore.
Meanwhile, yields on US Treasuries rose on Thursday, weighing on the markets. US Treasury yields rose about 5 basis points on Thursday despite a disappointing update to third-quarter GDP, which increased 2% compared to the same period last year.
Regardless, crude oil prices are still trading above $80 a barrel amid supply concerns, which has raised inflation concerns among traders.
At the moment, Brent crude prices fell to their lowest level in two weeks, as concerns about the growth of supply from the United States eased with the concentration of supply from Iran. By closing market hours, Brent crude prices were trading at $84.55 a barrel for the December maturity.