[Investors Please Listen] Government bond yields firm; OMO auction purchases stock worth INR 54.1 bn, The bearish sentiment along with investor disinterest in government bonds

n               Trades on the NDS-OM platform were inhibited for most of the day as participants braced themselves for tomorrow's INR 120 bn G-sec auction, while the underlying bearish sentiment played out to harden yields on sovereign bonds by 2-5bps. Total volumes closed at a dismal INR 41.35 bn with the 10-year bond trading for a mere INR 1.4 bn with 5-7 year papers being the most liquid segment.   

n               The 10-year bond (6.90% GoI 2019) yield closed 7bps higher than the previous trading day at 7.18%, while yield for the most liquid counter of 7.02% GoI 2016 was unmoved at 7.11%. We expect sovereign yields to be pushed still higher as participants induce a sell-off prior to the auction that may report some devolvement owing to reduced investor appetite of the banking system.

n               The INR 60 bn OMO auction conducted by the RBI reported a purchase of INR 54.10 bn worth of stock from the system. However all bids of the older 10-year paper (6.05% GoI 2019) failing the attempt of participants to offload the stock from their bleeding G-Sec portfolios.  

n               Annual inflation for week ended August 8 stood 21bps higher (Y-o-Y) than the same for the previous week, at -1.53%, with the wholesale price index rising by 0.1% (W-o-W). The price index for food articles rose by 0.2%, while that for food products rose by 0.4%, both being W-o-W variations.       

n               Tomorrow's G-sec auction was underwritten by primary dealers at commissions expected by the market at large; the 10-year bond's commission stood at 12 paise per INR 100, while the same for 18-year paper stood at 15.6 paise/INR 100.    

n               The bearish sentiment along with investor disinterest in government bonds spilled over to the corporate debt segment as well; CDs worth a mere INR 3 bn were issued today.

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