Bond yields touched near two-week lows on Tuesday on demand spurred by the absence of bond auction next week with ample liquidity in the banking system lending further support to prices.
The yield on the 10-year benchmark bond closed at 7.28%, after falling as low as 7.26%, a level last seen on Nov 5. It had ended at 7.31% on Monday.
?There is ample liquidity in the banking system, but credit is not growing. Bank deposits are growing at 19 % but advances (credit) growth is just 9 %,? said S Srikumar, manager of fixed income at Corporation Bank.
The rupee ended down against the dollar as banks purchased the greenback for importers, and noting dollar?s rise against major currencies, dealers said.
It ended at Rs 46.3 per dollar, compared to Rs 46.22 per dollar Monday. Intraday, rupee traded in the 46.1200-46.3600 band.
The market still faces an Rs 7,000 crore treasury bill auction on Wednesday, ahead of an Rs 10,000 crore federal bond sale on Friday which would be watched closely for cues on market appetite for debt.
Excluding Friday?s bond auction, the government is yet to sell Rs 64,000 crore of bonds in the remaining financial year.
Inflows in late December of about Rs 15,000-20,000 crore from coupon payment by the government to pension funds on Special Deposit Schemes would create some demand for debt, dealers said.
Call money rate ended unchanged from previous close today as ample liquidity enabled banks to borrow at the lower end of the interest rate corridor, dealers said.
The one-day call money rate ended at 3.25-3.30%.
?Demand was slightly lower today, and I expect it to fall further in the coming days as we approach the reporting Friday,? said a dealer at a private bank.