MUMBAI: Indian federal bond yields climbed to a fresh 3-year high on Wednesday as traders awaited a $3.04 billion debt auction on Friday.
Volume was light with a market holiday on Thursday keeping many traders on the sidelines. Market sentiment remained subdued following a big increase in government borrowing for the October to March period, announced last week, traders said.
"The excess borrowing in the second half is really worrying. Everyone is overfed with bonds, what interest they carry is one thing, more importantly one should have the need and capacity to buy further," said Anoop Verma, an associate vice president with Development Credit Bank.
The benchmark 10-year bond yield climbed to 8.56 percent, its highest since Sept. 29, 2008. By 11:50 a.m. (0620 GMT), it was at 8.55 percent, up 1 basis point from Tuesday's close.
Total volume on the central bank's electronic trading platform was 33.40 billion rupees ($678.9 million) sharply lower than an average 45 billion to 50 billion rupees usually dealt in the first three hours of trade.
Traders forecast the 10-year yield to move in a range of 8.55-8.60 percent during the day.
The government is set to sell on Friday 30 billion rupees each of 8.07 percent 2017 bonds, 8.28 percent 2027 bonds, and 8.30 percent 2040 bonds. It will also offer 60 billion rupees of 8.08 percent 2022 bonds.
The auction is part of 2.2 trillion rupees the government aims to borrow between October and March, significantly higher than the budgeted 1.67 trillion rupees.
The yields set in state loans on Tuesday were higher than expected, traders said.
Nine states had raised a total of 77.35 billion rupees via 10-year state development loans, lower than 82 billion rupees planned, the central bank said.
The benchmark five-year swap was down 1 basis point at 7.07 percent, while the one-year rate dropped 4 basis points to 7.82 percent.
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