Bond Yields End Higher As Participants Worry Over Excess Bond Supply

On Friday, April 3, 2020, the yield on 10-year benchmark bond closed higher by 17 bps at 6.305% as market participants worried over excess supply of bonds in the market. Also, there was no indication on how the apex bank would tackle the likely higher borrowing by the government amid Covid 19 outbreak.

Head of treasury at STCI Primary Dealer told to a leading business daily that before the borrowing calendar for H1FY21 was announced, market participants expected that the likely excess borrowing by the government will be absorbed directly by the RBI. Also, they estimated government borrowing to remain moderate in April. But as none of the expectations came through in the borrowing calendar, bond dealers are disappointed.

"So far, the RBI has also not announced the trajectory of OMO purchases that could absorb the potential additional borrowing by the government. Moreover, the supply of SDLs is also huge this time and the market is really worried about the total over-supply in the market. All this has taken a toll on the yields," added Treasury Head.

As per the indicative borrowing calendar for H1FY21, the government's borrowing till May 1 is pegged at Rs. 79,000 crore. Further, state governments will likely borrow Rs. 1.27 trillion from the market in Q1.

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