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Indian government bonds remained stable as investors prepared for a large state debt auction, which forms part of a record INR 5 trillion issuance planned for January-March. The 10-year benchmark yield saw minimal change, while market participants remained cautious amid patchy demand. State-run banks supported the market, purchasing nearly INR 125 billion in recent sessions, aided by RBI's bond-buying program. Liquidity conditions have improved since late December, but surplus levels remain below November averages. Longer-term OIS rates eased slightly after rising in previous sessions.
Indian government bonds remained largely unchanged in early trading, as investors prepared cautiously for a significant state debt sale that could test demand in a market already facing limited buyers. The benchmark 10-year government bond yield was at 6.6374% in the morning, slightly higher than Monday' close of 6.6331%. Bond prices move inversely to yields, so stability in prices reflected this small change in yields. Advertisement
Indian states are scheduled to borrow INR 301 billion (USD 3.34 billion) through bond sales later in the week, forming part of a record INR 5 trillion debt issuance planned from January to March. A private-bank trader noted that demand had been inconsistent, and traders were likely to seek a higher premium to absorb such a large supply. While the auction is expected to clear, elevated yields may weigh on market sentiment.
Market participants have generally reduced positions since the beginning of January, concerned that the extensive state borrowing program could result in excess supply. Despite this, state-run banks have acted as value buyers, net purchasing nearly INR 125 billion of bonds over the past three sessions. These banks have been supported by the Reserve Bank of India's (RBI) ongoing open market operations, which helped limit price declines. The central bank bought bonds worth INR 500 billion recently and plans to purchase an additional INR 1 trillion of bonds during January. RBI is also set to conduct a foreign exchange swap worth USD 10 billion next Tuesday.
The banking system had experienced a cash deficit from December 16 to December 30 but returned to a surplus afterward. However, the surplus remains below INR 1 trillion, significantly lower than the November average daily liquidity surplus of INR 1.78 trillion.
Longer-duration overnight index swap (OIS) rates for India eased early in the week after three consecutive sessions of increases. The one-year OIS rate remained steady at 5.4850%, the two-year rate declined by 2 basis points to 5.5650%, and the five-year rate fell by 1.5 basis points to 5.96%.
Source Reuters
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