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Indian bonds fall; debt sale, RBI policy in focus

LiveMint logoLiveMint 28-05-2014 Neha Dasgupta

Mumbai: India’s benchmark 10-year bonds fell on Wednesday as traders trimmed debt holdings ahead of this week’s auction, although continued optimism over the new government’s plan on fiscal consolidation capped broader losses.

The Reserve Bank of India (RBI) will sell `16,000 crore worth bonds on Friday, which includes a new 14-year paper. Investors were also wary ahead of the central bank’s policy review on 3 June. A Reuters poll out on Wednesday showed all but three of the 52 economists polled on May 15-27 predicted the RBI would keep interest rates on hold.

Further ahead, the budget from the new government led by Prime Minister Narendra Modi, expected in early or mid-July, will be critical for debt markets. “July would be crucial in terms of the Budget but we may see momentum buying if the RBI maintains a softer tone next week which can bring the 10-year yield to 8.60% and that should sustain until the Budget,” said Shakti Satapathy, a senior strategist with AK Capital.

The benchmark 10-year bond yield ended up 3 basis points at 8.70%. Traders said large investors, primarily state-owned banks, were spotted selling which hurt sentiment, while little impact was seen from Treasury bill auction results as the cutoffs broadly met expectations. In the overnight indexed swap market, the benchmark five-year swap rate and the one-year rate both ended up 2 basis points each at 8.16% and 8.40%, respectively. Reuters

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