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Indian government bonds advanced as traders prepared for the Reserve Bank of India’s upcoming bond purchase, expected to include both liquid and former benchmark securities. The benchmark 10-year yield fell to 6.5745% from 6.5931% previously. Following the RBI’s rate cut earlier this month, bond yields faced upward pressure due to expectations that the easing cycle has concluded. The central bank’s bond-buying program has reached record levels this financial year, while foreign investors have reduced exposure, selling over USD 1 billion. Analysts view the current yields as attractive for initiating fresh positions, especially in ultra-long bonds.
Indian government bonds closed higher as investors positioned themselves ahead of the Reserve Bank of India’s scheduled bond purchase later this week. The central bank plans to acquire bonds worth INR 500 billion (USD 5.50 billion), which will include the former benchmark 6.33% 2035 note. Advertisement
The benchmark 10-year government bond yield decreased to 6.5745%, down from Monday’s 6.5931%. Bond yields move inversely to prices, so this indicates an uptick in demand. Traders have been recalibrating expectations following the RBI’s rate cut earlier this month, which initially exerted upward pressure on yields due to speculation that the monetary easing cycle could be nearing its end.
In a similar operation last week, the RBI purchased bonds in quantities exceeding estimates, pushing its bond acquisitions to record highs for the current financial year. ICICI Securities Primary Dealership noted that while liquidity-easing measures announced in the RBI’s policy meeting have begun to take effect, similar interventions may continue over January and February. They also highlighted that lighter but ongoing foreign exchange market interventions could influence bond demand further.
Foreign investors have been adjusting their portfolios this month, selling bonds worth more than USD 1 billion on a net basis, driven by expectations of a prolonged pause in rate changes and year-end positioning. Rahul Bhuskute, chief investment officer at Bharti AXA Life Insurance, observed that the recent rise in ultra-long bond yields presents opportunities to build new positions.
Short-term rates also showed movement, with the overnight index swap (OIS) rates rising at the shorter end but remaining largely unchanged at the long end. The one-year OIS rate ended at 5.4650%, the two-year rate at 5.55%, and the five-year rate closed at 5.8975%.
Source Reuters
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