(Bloomberg) -- India's most-traded bonds dropped on speculation a shortage of the securities in the repurchase market has eased, eliminating the need for investors to buy them from the secondary market.
Yields on two sovereign notes maturing in 2026 climbed Monday after sliding for the last two days on account of a ‘repo squeeze.' The situation arose after some banks refused to part with the securities in a bid to maximize their treasury gains before closing books for the year ending March 31. That prompted participants looking to finance their overnight naked short positions to buy the notes from the secondary market.
“The situation in the repo market has improved,” said Harish Agarwal, a fixed-income trader at FirstRand Bank Ltd. in Mumbai. “Most of the short-covering related buying is done.”
The yield on the benchmark 6.97 percent notes due September 2026 rose seven basis points to 6.85 percent as of 1:24 p.m. in Mumbai, according to prices from the Reserve Bank of India's trading system. It slipped 16 basis points in the last two days. With total traded amount at 37 billion rupees ($554 million), the securities were the most active on the RBI's dealing platform.
The yield on the 7.59 percent bonds due January 2026 also increased seven basis points to 7.04 percent, having fallen 13 basis points over Thursday and Friday.
The repo funding rate, a barometer for the demand and supply of borrowing bonds, rose to 3 percent for both the securities on Monday, signaling improved availability of the debt. It had dropped to near zero last week.
Investors such as banks and primary dealers borrow and lend fixed-income securities in the repo market. Repurchase agreements, or repos, are vital because they allow traders to finance positions in the broader fixed-income market.
To contact the reporter on this story: Subhadip Sircar in Mumbai at ssircar3@bloomberg.net.
To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Shikhar Balwani, Nicholas Reynolds
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