MUMBAI: Indian government bond yields ended flat on Monday as it awaited word from the central bank on resumption of bond purchases to inject liquidity with hopes that weakening economic growth would bolster the case for rate cuts next month.
Bonds have rallied for nine straight weeks with the yield on the benchmark paper having dropped 62 basis points during this period, sparked by $5.05 billion in net purchases from foreign investors, including a net $1.7 billion in May.
Investors are betting the Reserve Bank of India (RBI) will announce bond purchases this week after last conducting these open market operations (OMOs) on May 7 as bank borrowings have hovered at around 1 trillion rupees for the month.
India is also set to post gross domestic product data on Friday, and dealers are hoping weaker growth will push the RBI to cut interest rates again next month after easing by a total of 75 basis points this year.
"Given the probability of an OMO announcement and rate cut expectation getting strong foot on the back of sub 5 percent GDP reading, the buying is taking place," said Shakti Satapathy, a fixed income analyst with A.K. Capital.
The old benchmark 10-year bond closed unchanged at 7.34 percent. It fell to 7.32 percent in session.
The 7.16 percent 2023 bond, which is expected to become the new benchmark, closed up 1 basis point at 7.12 percent. Total volumes stood at an average 614.20 billion rupees.
The rally in bonds is also spurring hopes India will further raise limits for foreign investors to buy into government debt, with existing limits nearly exhausted. The country last raised limits on foreign investment in January.
The one-year swap rate ended down 1 bp at 7.08 percent while the benchmark five-year swap ended 1 bp higher at 6.77 percent.
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