10-year bond yields rise post RBI’s partial devolvement at auction

Yields on the new 10-year benchmark 6.10%-2031 bonds rose after the Reserve Bank of India (RBI) partially devolved the benchmark bonds on primary dealers (PDs) at the weekly bond auction on Friday. The 10-year benchmark 6.10%-2031 bonds ended at Rs 99.52 or 6.1648% yield, three basis points higher than their previous close on Thursday. A basis point is one hundredth of one percentage point.

“Yields on the 10-year bond rose because the RBI partially devolved the benchmark bond and there was low demand in the market,” said Mahendra Kumar Jajoo, chief investment officer- fixed income, Mirae Asset Investment Managers (India).

At Friday’s weekly bond auction, the central bank devolved Rs 11,144.145 crore on primary dealers, and accepted only Rs 2,855.855 crore at Rs 99.6300 cut off price or 6.1498% yield. The RBI accepted the green-shoe option of Rs 750 crore and Rs 2,250 crore on 4.26%-2023 and 6.76%-2061 bonds, respectively. The central bank has raised Rs 3,750 crore, compared to Rs 3,000 crore notified via 4.26%-2023 bonds at Rs 100.02 or 4.2453% yield, and Rs 11, 250 crore, as against Rs 9,000 crore notified via 6.76%-2061 bonds at Rs 94.39 or 7.1890% yield.

However, the devolvement on PDs at the auction on Friday did not impact most other bonds, but some ended higher marginally. The yields on 5.63%-2026 ended at 5.6864%, as against 5.6814% on Thursday.

“Other bonds did not react much after devolvement as market participants are expecting an OMO to be announced later today (Friday),” a dealer with a large state-owned bank said. On Thursday, the yields on 10-year Treasury fell marginally on lower than expected weekly jobless claim data. The US Treasury yields were at 1.26%, which was two basis points lower than it was closed on the previous trading session.
The initial jobless claims in the US was 419,000 as per the US Department of Labor, which was up from a revised 368,000 claims.