MUMBAI: Indian government bonds ended steady on Wednesday as initial gains were offset by uncertainty about when the government would increase the limit for foreign investors in debt.
Trading volume in the bond market was high for a second consecutive day amid continued inflows from funds overseas. Regulatory data showed foreign banks bought debt worth $159.24 million on Tuesday, their fourth consecutive day of purchases.
The improved sentiment comes on the back of much easier cash conditions. Liquidity deficit in the banking system has dropped sharply due to government spending, traders said, allowing the overnight cash rate to hover below the repo rate.
Meanwhile, Brent crude hit a 16-month low on Tuesday, raising confidence about the inflation outlook in India and the fiscal deficit.
"Ample liquidity has meant that the carry yield for bonds has become positive and market participants can hold on to a bond for a longer period of time," said Alok Singh, chief investment officer - fixed income at BoI AXA Asset Management in Mumbai.
The 2024 10-year bond yield, which became the benchmark last month, closed steady on the day at 8.52 percent.
Analysts say gains could be sustained if the government raises foreign investment limits as is expected in markets.
"Local players have been on the buying side, hoping that once the government allows more foreign portfolio investments in debt, they will be able to offload their holdings," Singh said.
In the overnight indexed swap market, the benchmark five-year swap rate ended steady at 8.00 percent, while the one-year rate ended up 1 basis point at 8.45 percent.
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