Indian government bonds rose
in early trade on Thursday, led by the shorter-duration papers,
after larger-than-expected dollar inflows under the central
bank’s special schemes boosted rupee liquidity and improved
sentiment for Indian assets.
The yield on the benchmark 6.94% 2036 bond was at 6.9502% as of 10:30 a.m. IST, after closing at 6.9754% on Wednesday.
The five-year 6.36% 2031 bond yield dropped 8 bps to 6.48%.
India attracted a much larger-than-expected $136.38 billion
through special foreign-currency mobilisation schemes,
strengthening its ability to support the rupee while adding to
domestic liquidity.
Indian banks raised $127.23 billion through non-resident
foreign-currency deposits, with additional inflows coming
through external commercial borrowings and overseas
foreign-currency borrowings.
The majority of these funds would remain in the system for
three to five years and could boost demand for five-year
securities, especially from foreign banks with limited retail
lending operations, traders said.
India’s banking system liquidity surplus jumped to ₹9.7 lakh crore ($102.76 billion) as most banks have swapped
their dollars inflow with the central bank.
Kotak Mahindra Bank said concerns that the Reserve Bank of
India would need to aggressively sterilise the liquidity surplus
may be overstated.
It expects the RBI to rely more on short-term liquidity
management tools, including sales of bills with four- to
five-month maturities.
However, elevated oil prices and U.S. Treasury yields
continued to weigh on demand for longer-dated bonds.
Benchmark Brent crude contract hovered around $95 per barrel
amid concerns over supply disruption.
A sustained rise in energy prices could worsen major
importer India’s inflation outlook and strain government
finances.
RATES
India’s overnight indexed swap rates plunged across the
curve as the liquidity surplus triggered receiving interest.
The one-year rate was at 5.96%, while the
two-year rate was at 6.16%. The most liquid
five-year rate declined 7 bps to 6.46%.