Last Thursday, the 10-year government bond yield eased by over 10 basis points to 8.85 per cent. On the same day, the RBI conducted the largest-ever auction of bonds worth Rs. 20,000 crore.
It seems difficult that yields will fall further as every week the Reserve Bank would be selling higher amount of bonds.
The government has planned to borrow in the range of Rs. 14,000-20,000 crore every week from the market in the first half of the current fiscal which will put pressure on bond prices.
"Also, the money which came last week after redemption of security is also being utilised, and for any fresh buying traders do not have money," a senior dealer with another state-owned bank said.
Last week, there was redemption of over Rs. 40,000 crore from the 7.37 per cent 2014 security.
The redemption money helped Reserve Bank to garner full notified amount in the weekly bond auction last Thursday, as market participants were replenishing their stocks.
The RBI offered to sell Rs. 20,000 crore, which was highest ever, of four securities -- 8.35 per cent (2022), 8.24 per cent (2027), 9.20 per cent (2030) and 9.23 per cent (2043).
Some of the traders said life insurance giant LIC bought majority chunk of the 2030 and 2043 bonds in the previous week's auction.
According to a treasurer at a private bank, the benchmark 10-year bond yield may not ease beyond 8.80 per cent.We may not see yield falling below 8.82-8.80 per cent in the absence of fresh buying till the time the election results are declared..