Indian government bonds may
edge higher on Wednesday after decent buying from an investor
category that includes the central bank, though gains are likely
to be capped after the debt’s exclusion from a global index, an
unexpected setback.
The benchmark 10-year 6.48% 2035 bond yield
is likely to be in the range of 6.60% to 6.65%, a trader with a
private bank said. It ended at 6.6277% on Tuesday. Bond yields
move inversely to prices.
“With higher numbers on a daily basis, the market is getting
comfortable with the fact that it must be the Reserve Bank of
India, and that is what is putting a ceiling at 6.65% for the
10-year yield,” the trader said.
Investors from others category have net bought bonds worth
124 billion rupees ($1.37 billion) over the previous three
trading sessions, nearly 2.5 times of their purchase in the
first six days of the year.
The investor category comprises insurance companies,
corporations, pension funds and the Reserve Bank of India as
major constituents.
A government security matured on Friday, and traders
speculate the RBI had around 200 billion to 250 billion rupees
of the stock, which it may seek to replenish through secondary
market purchases.
Still, the 10-year yield is unlikely to stay below 6.60%
mark as Bloomberg Index Services deferred adding Indian bonds to
its flagship Global Aggregate Index, disappointing investors
that had viewed the inclusion an nearly certain.
The service provider said a number of respondents
highlighted important operational and market-infrastructure
considerations that merit further evaluation before inclusion.
Meanwhile, oil prices continued to rise, with the benchmark
Brent crude contract touching an over two-month peak, amid
prospects of disruptions to Iranian crude exports.
Rates
India’s overnight index swap rates are expected to remain in
narrow range after rising on Tuesday.
The one-year OIS ended at 5.5050%, while
the two-year OIS rate closed at 5.5850%. The liquid five-year
OIS rate jumped 3 bps to settle at 5.9625%.
Key Indicators
** Benchmark Brent crude futures were down 0.1% at
$65.40 per barrel after rising 2.5% in the previous session
** Two-year U.S. Treasury yield was at 3.5283%,
10-year U.S. Treasury yield at 4.1752%
** RBI to auction treasury bills worth 290 billion rupees