Indian bond yields rise, OIS hit new highs

01 Aug, 2010

Indian federal bond yields rose to fresh highs on Friday on concerns of sharper monetary action going ahead and traders said the selling pressure may remain next week as well due to tight cash conditions. The benchmark 10-year bond yield ended at 7.80 percent, after rising to 7.82 percent intra-day, it highest since May 7 as per Thomson Reuters data. It had ended at 7.78 percent on Thursday.
The yield ranged between 7.76-7.82 percent during the day. Total volume on the central bank's trading platform was a heavy 85.55 billion rupees ($1.84 billion). The 10-year yield is up 22 basis points through the week. Paul expects it to be in the range of 7.80 percent to 7.85 percent next week.
India's consumer price index (CPI) rose 13.73 percent in June from a year earlier, marginally slower than May's annual rise of 13.91 percent, government data showed on Friday. The federal government sold 150 billion rupees of bonds, including 50 each of 7.17 percent bonds maturing in 2015 and 7.80 percent 2020 bonds on Friday. It also sold 30 billion rupees of 8.24 percent 2027 bonds and 20 billion rupees of 8.30 percent 2040 bonds. Cut-off yields set by the central bank were mostly in line with expectations, traders said.
Concerns about sharper policy rate hikes and worries about liquidity conditions pushed up OIS (overnight indexed swaps) to fresh highs on Friday. The most actively traded one-year OIS rate ended at 6.35 percent, after hitting 6.40 percent, its highest since November 6, 2008. It had ended at 6.24 percent on Thursday.
The benchmark five-year rate closed at 7.26 percent, off an intra-day high of 7.32 percent and from its previous close of 7.22 percent. In interest rate futures on the National Stock Exchange, the September contract implied a yield of 7.9393 percent, while the December contract as not traded.

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