MUMBAI: India's newly issued 10-year bond continued to gain on Monday, benefitting from its scarcity premium, while other bonds also rose after global crude prices slumped.
Bonds overall are, however, struggling, with the existing benchmark 10-year bond yield easing marginally after rising for three consecutive sessions amid doubts about whether the central bank will aggressively purchase debt given signs of improved liquidity.
The reduced prospect of debt purchases are denting sentiment even as Brent crude dropped as much as $3 a barrel on Monday following a breakthrough nuclear deal between world powers and Iran over the weekend.
If sustained, lower crude would help contain inflation and narrow the current account deficit since India imports nearly two-thirds of its crude requirements.
"With liquidity improving, chances of open market operations are not there. Trading in the new 10-year paper is supporting the market somewhat. However, I do not see much positive triggers for now," said Baljinder Singh, a bond dealer with Andhra Bank.
The new 10-year bond yield closed at 8.75 percent, down 3 basis points, from its cut-off of 8.83 pct on Friday when the government first issued 70 billion rupees ($1.11 billion) worth of the debt.
The bond, which on Monday was the most actively traded, will become India's benchmark after a few more issuances.
The existing 10-year benchmark bond yield ended 1 basis point down at 9.09 percent.
Cash in the banking system has improved on government spending and a return of dollar buying by state-run oil refiners in the forex market.
That could reduce the prospect of bond purchases by the Reserve Bank of India, which last week bought 61.57 billion worth via open market operations, its first such action since early October.
In the overnight indexed swap market, the benchmark five-year swap rate closed 1 bp lower at 8.45 percent, while the one-year rate was down 2 bps at 8.56 percent.
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