The yield on benchmark bonds hit a two-year high of 7.78% on Monday as trading activity remained subdued and lacklustre buying interest pushed the yields higher by four basis points compared to Thursday’s level.
The yield rose as high as 7.783% during the day before closing the session at almost the same levels.
MS Gopikrishnan, head of FXRC trading, South Asia at Standard Chartered Bank points out that there was lacklustre participation on Monday in the G-sec market as the year draws to an end.
“Demand for bonds has been on a lower side since the past few months which has led to this situation. The trading activity is expected to pick up only in April when fresh supply of G-secs hits the market and foreign portfolio investor (FPI) investment limits in G-secs is due for review. PSU banks have been absent from the market for sometime now as any selling may result in booking losses and their appetite to buy additional bonds has dwindled,” he said.
According to the negotiated dealing system, the benchmark bonds witnessed 324 trades during the day with the total traded amount standing at just Rs 2,405 crone. Dealers indicate this is one of the lowest traded volumes seen over the last few months.
Vijay Sharma, senior executive vice-president at PNB Gilts, points out that the volumes were extremely low on Monday with no trades seen during the first few minutes of the market opening.
“Even the benchmark bonds witnessed very little trading activity. Volumes remained low as market participants, traders and investors alike, are unwilling to trade actively as the year is coming to an end. The market is worried about the new supply of G-secs that will hit the market come April, given that PSU banks have been muted buyers in the past many months,” he said.
Even foreign portfolio investors have started to cut back on their holdings of Indian bonds. According to Bloomberg data, FPI holding of Indian bonds in 2018 stand at just over a billion dollar. The last three sessions have seen a net selling by FPIs to the tune of $531 million.