Mumbai : Yields on 10-year government bonds fell by the most in 19 months as traders rushed to cover their short positions amid falling oil prices and US Treasury yields. The yield fell 12 basis points to 7.04% at the close of trading on Monday.
However, shares fell for the second day in a row on prospects of an aggressive rate hike by the US Federal Reserve. Future Group firms declined after Reliance Industries Ltd. canceled its offer to buy assets. The National Stock Exchange’s Nifty index fell 1.27% to 16,953.95, while the BSE Sensex ended 1.08% lower at 56,579.89.
Bond yields are rising this month as the Reserve Bank of India has said it will pivot to fight inflation. The yield on the benchmark 10-year bond peaked at 7.28% on April 13 as traders bet on an imminent hike in interest rates by short-selling bonds. Last Friday, the 2035 bond became the lowest selling paper with trades of 6.67%, value 12,303 crore on Clearcorp’s repo order matching system.
A short sale entails selling the borrowed security with the intention of buying it later when prices fall. Short selling is an important tool for hedging against rising market rates.
However, crude oil prices fell nearly 5% this week as the IMF cut its world economic growth forecast and US 10-year Treasury yields fell by the most in three years.
Meanwhile, state governments in India stayed away from borrowing from the domestic market after the central transfer in March 1 trillion capital expenditure support announced in the budget. only punjab will take 1,500 crore in the auction this week by issuing State Development Loans (SDLs) this week.
Separately, last week’s 5-15 year papers also saw aggressive buying by corporates. Traders also began to open their short positions, which led to a drop in 10-year yields by about 24 basis points.
“Bond yield increased from 6.22% on 30 September 2021 to 7.28% in about six months till 13 April 2022. So a retracement was inevitable. A significant correction in crude oil, no SDL auctions as per schedule and reversals at the US Treasury and huge short positions created in the bond market coupled with risk-off sentiment globally pushed this fall from a peak of 7.28 to a 10-year gain of 7.04%. level reached. %,” said Gopal Tripathi, head of treasury at Jana Small Finance Bank.
However, the bond market could remain volatile as investors worry about a heavy supply of bonds and a tightening of aggressive policy by the US Fed. “We expect the benchmark 10-year yield to trade in the 6.90-7.15% range in the near term,” Kotak Mahindra Bank said in a report on Monday.