Benchmark yield up after debt supply, logs biggest annual rise in 13 years

A man counts Indian currency notes inside a shop in Mumbai

By Bhakti Tambe and Dharamraj Dhutia

MUMBAI (Reuters) - Indian benchmark bond yields rose on Friday, as the weekly auction of securities added to the debt supply on low trading volume, while it logged its biggest annual rise in 13 years.

The 10-year benchmark bond yield ended at 7.3277%, after closing at 7.3114% on Thursday. The yield ended flat on the week but eased seven basis points in October-December, its second consecutive quarterly decline.

It however jumped 87 bps in 2022, biggest such move since 2009.

New Delhi today raised 300 billion Indian rupees ($3.63 billion) through the sale of bonds, at cutoff yields which were in line with estimates.

"The auction cutoffs were in line with expectations, but there was a visible absence of long-term investors like banks and pension funds," a trader with a private bank said.

"Hopefully, as traders return to dealing rooms from next week, the enthusiasm in the bond market will be back."

Bond yields have remained in a narrow range for the last few sessions and trading volumes have been tepid, as most traders stayed on the sidelines refraining from placing large bets ahead of the end of the quarter and calendar year. Banks, the largest players in the bond market, have been nearly absent from the market since last week due to accounting reasons, traders said, adding that this is normal towards the end of the quarter.

Market participants also said the next major trigger for the market would be the union budget and the borrowing plan for the next financial year.

"The fiscal deficit for the next financial year will be a key focus area... A high fiscal deficit will mean increased market borrowings which could push yields upwards," said Anand Nevatia, fund manager at Trust Mutual Fund.

"Banks are already sitting on excess government bond holdings, and with increasing credit demand they may not be willing participants to the borrowing program."

Traders will also await the state debt issuance calendar for the January-March period, with estimates of around 2.8 trillion rupees to 3 trillion rupees borrowing.

($1 = 82.7425 Indian rupees)

(Reporting by Bhakti Tambe and Dharamraj Dhutia; Editing by Eileen Soreng)