Mumbai: Government bonds fell for a fourth straight session on Wednesday in volatile trading, tailing the rupee which made new lows on fears that foreigners will continue to exit the country as economic challenges mount.
Bond investors remain buffeted by current account deficit worries as foreign investors pull out of emerging markets and by fiscal deficit concerns as the government gets ready to roll out an ambitious food subsidy programme.
The primary concern for bond dealers, however, remains the rupee, which plummeted 3.7 percent on Wednesday. The local currency fell to a record low of 68.85 to a dollar on concerns that foreign investors may start pulling out of equities.
Foreign investors have sold nearly $1 billion in eight sessions to Tuesday after having relatively resilient.
Dealers say bonds found some support around 9 percent yield levels as they found them attractive.
"There was clearly a lot of support for the market at 9 percent yield levels. The RBI has signalled that it wants to keep long-term yields down," said R. Sivakumar, head of fixed income dealing at Axis Mutual Fund.
The benchmark 10-year bond yield rose 18 basis points to 8.96 percent. It traded in a band of 8.76 percent to 9.04 percent during the session. Volumes remained low at 136.80 billion rupees.
The central bank will buy 80 billion rupees worth of government bonds through an open market operation on Friday, its second such purchase in as many weeks.
The bond purchase is a part of the central bank's plan to keep long-term yields capped as it tries to provide succour to a bond market roiled by its rupee defence and heavy supply in August.
The central bank will also sell 170 billion rupees of bonds on Friday, its biggest weekly sale in the fiscal first half.
In the overnight indexed swap market, the benchmark five-year rate closed up 32 bps at 9.10 percent. The one-year rate ended 32 bps higher at 10.16 percent.