Bonds give up gains ahead of key macro data

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MUMBAI: Government bonds gave up early gains on Thursday to end lower as optimism from the cancellation of a previously deferred auction and part completion of a scheduled debt switch was offset by caution ahead of key data next week.

The immediate focus is on Friday's Rs 100 billion ($1.60 billion) bond sale which will mark the end of the current fiscal year's borrowing plan for the government.

After trading hours on Wednesday, the government cancelled a previously deferred debt auction worth Rs 150 billion and partially completed its government bond switch through a private transaction with an institutional investor it did not name.

The central bank on Thursday also extended liquidity support to banks, saying it will conduct a 14-day repo auction for Rs 390 billion on Friday.

"The market wants to get the auction out of the way first and take cues from the cut-off because there are a large number of data points coming in the next week," said Prasanna Patankar, vice-president at STCI Primary Dealer Ltd.

Bond investors will await domestic inflation and industrial production numbers next week. Prior to that, the government will release advance GDP numbers for the current fiscal year on Friday.

Reserve Bank of India Governor Raghuram Rajan surprised investors by raising rates last month, but said he will remain on hold if inflation continues to ease as per the central bank's expectations.

Globally, the US jobs data on Friday will be crucial as foreign investors have continued to bail out of rupee debt. Foreign funds have been net sellers in 10 of the 11 sessions to Wednesday for a cumulative $1.6 billion.

In a volatile session, the benchmark 10-year bond yield ended 1 basis point higher at 8.72 per cent. It traded in a broad 8.64-8.75 per cent band.

In the overnight indexed swap market, the benchmark five-year swap rate closed 2 bps higher at 8.39 per cent, while the one-year rate ended up 1 bp at 8.64 per cent.

Source » Economic Times
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