Indian government bonds gave
up opening gains on Tuesday, as a chunky state debt supply due
later in the day eclipsed the impact of the central bank’s plan
to inject liquidity into the banking system through
mid-February.
The benchmark 10-year 6.48% 2035 bond yield
was at 6.6661% at 10:00 a.m. IST, up from the day’s low of
6.6443%. It ended at 6.6635% on Friday. Indian financial markets
was closed on Monday due to Republic Day..
Bond yields move inversely to prices.
The Reserve Bank of India, after market hours on Friday,
said that it will inject more than $23 billion of liquidity into
the banking system, spurring wagers that the support could
extend into March.
Still, traders scaled back buying on concerns that the
market may struggle to digest a chunky state bond issuance.
Indian states are set to issue 398 billion rupees of bonds
later in the day. While that figure is below the 473 billion
rupees originally scheduled, it is higher than what traders had
expected.
States have announced a record borrowing of 5 trillion rupees for the January-March period.
“The RBI’s cash injections were expected, and are only a
temporary solution to the supply-demand mismatch,” a
private-bank trader said.
“A lot now hinges on what the Budget signals on the scale of
debt supply, which will shape the trajectory of the government’s
cost of borrowing.”
India’s federal budget is due on February 1 and analysts
expect the government to announce a record gross borrowing for
the next fiscal year, ranging between 16 trillion rupees to 17.5
trillion rupees.
Rates
India’s overnight index swap rates eased in early trading
tracking lower U.S. yields.
The one-year OIS was at 5.56%, down 3.5
basis points, while the two-year rate fell
1.75 bps to 5.71%. The five-year OIS rate
drifted down 1.75 bps to 6.12%.