(Bloomberg) — Indian sovereign bonds slumped as the central bank’s choice of relatively illiquid papers for its bond-purchase program disappointed traders. Surging global oil prices also weighed on sentiment.
The yield on the 5.63% bond maturing in 2026 rose as much as 13 basis points to 5.89%, while the 6.64% 2035 bond yield climbed eight basis points. The benchmark 10-year yield advanced nine basis points to 6.18%, its biggest jump in nearly three months.
“The choice of illiquid papers has disappointed traders,” said Debendra Dash, head of fixed income at AU Small Finance Bank in Mumbai. “Traders were hoping the RBI will include the 5-year paper,” in the purchase list as it had asked underwriters to buy that paper.
Underwriters had to rescue nearly the entire 110 billion rupees ($1.5 billion) of the 5-year bond at last week’s sale.
The announcement of a new 10-year bond, which is likely to have a higher coupon, compared to 5.85% for the current benchmark, also damped sentiments, traders said.
The central bank Monday said it would buy 200 billion rupees of bonds as part of its 1.2 trillion rupees purchase plan for the July-September quarter. But the choice of papers was likely to help banks book profits, leaving traders with devolved stocks of previous auctions, said traders, who didn’t want to be named, as they are not authorized to speak publicly.
The surge in crude, which gained further after OPEC+ ended days of talks without a deal to bring back more halted output next month, will further heighten inflation worries in India. Bond yields and swap rates have been rising on fears that the central bank will need to tighten its policy tone as early as August and bring ahead policy normalization.
“The rise in crude prices will put further upward pressure on yields ahead of the monetary policy,” said Arvind Chari, chief investment officer at Quantum Advisors Pvt.
The government will sell 260 billion rupees of bonds Friday, including 140 billion rupees of a new 10-year bond, it said after trading hours Monday.
(Updates with closing bond yields in the second paragraph)
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