Advertisement
When should a housing society in Mumbai start considering re...
From GST on JDAs to SEBI’s REIT reclassification and the S...
Stay ahead in the world of real estate with our daily podcas...
Stay ahead in the world of real estate with our daily podcas...
Indian government bonds saw mild selling pressure as markets reacted to a sharp increase in planned state government borrowing, raising concerns about excess supply. The benchmark 10-year yield edged higher despite a strong decline over the previous week. Tight liquidity conditions in the banking system have limited buying interest, following higher cut-off yields at a recent auction. The Reserve Bank of India's ongoing bond purchases and foreign exchange swaps are expected to support liquidity, even as traders remain cautious in the near term.
Indian government bond prices moved slightly lower during early trade at the start of the week, as market sentiment weakened due to a larger-than-expected state government debt sale scheduled for the next trading session. Dealers, however, remained watchful of support from the Reserve Bank of India's bond purchase operation due later in the day. Advertisement
The benchmark 10-year government bond yield was quoted at around 6.57 percent in morning trade, compared with its previous close of about 6.56 percent. Despite the day's weakness, the yield had declined by nearly 4 basis points over the past week, marking its sharpest weekly fall since early September. Bond yields move inversely to prices.
The pressure stemmed largely from supply concerns. State governments are set to raise INR 354.50 billion through bond auctions, an increase of INR 200 billion over the originally scheduled amount. Market participants remain cautious, especially after a recent debt auction saw cut-off yields come in higher than expected, signalling limited appetite at current levels.
Dealers pointed out that demand remains restrained as liquidity conditions stay tight. India's banking system has been in a liquidity deficit since mid-December, with the cash shortfall standing at around INR 626.7 billion at the end of last week. In such an environment, traders see little immediate incentive to add to bond holdings.
To address the liquidity strain, the Reserve Bank of India is set to purchase government bonds worth INR 500 billion through an open market operation later in the day. This marks the central bank's third bond purchase for the month. In total, the RBI has already bought bonds worth INR 1 trillion during the month and has conducted a USD 5 billion foreign exchange swap to ease funding pressures.
Looking ahead, the central bank has also announced a buy-sell foreign exchange swap worth USD 10 billion scheduled for January 13. Market participants believe these measures underline the RBI's intent to stabilise liquidity conditions and prevent excessive tightening in financial markets.
Despite near-term caution, traders remain moderately optimistic that sustained liquidity support from the central bank could gradually ease the cash crunch and help bond prices find firmer ground in the coming weeks.
In the interest rate derivatives market, overnight index swap rates traded in a narrow range, reflecting the lack of strong directional cues. The one-year OIS rate was steady at around 5.47 percent, while the two-year rate held near 5.56 percent. The five-year OIS rate was quoted close to 5.93 percent.
Source Reuters
5th Jun, 2025
25th May, 2023
11th May, 2023
27th Apr, 2023
Advertisement
Facebook
Whatsapp
