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Illiquid bonds rise on spread play

Reuters Market Eye - India's relatively illiquid government bonds gain as investors look for exposure to maturities similar to the benchmark 10-year bonds, but with much higher spreads.

Buying comes after the RBI cut the Marginal Standing Facility rate by 25 bps to 8.75 pct on Tuesday, which has also lowered the cost of carrying as overnight rates fall.

The 8.28 pct 2027 bond yield down 3 bps at 8.80 pct, the 8.20 pct 2025 bond yield down 4 bps at 8.94 pct and the 8.33 pct 2026 bond yield down 2 bps at 8.94 pct.

These bonds have a high spread over the 10-year benchmark despite being close in tenor, says a dealer. The benchmark 10-year bond yield is flat at 8.54 percent.

"We are seeing bonds which are yielding above 8.75 percent rally as the MSF rate has been cut to that level," says a dealer.

(Reporting by Subhadip Sircar)