MUMBAI: India’s long bond yields were largely steady in early deals on Tuesday, ahead of a hefty state debt sale, while yields on short-maturity bonds dipped ahead of the central bank’s mega liquidity injection later in the week.
The benchmark 10-year yield was at 6.6987% as of 9:45 a.m. IST, compared with its previous close of 6.7036%.
“Investor appetite for debt will be tested today as there is the state debt supply, and hence action in the longer end is slightly muted,” a trader with a private bank said.
Indian states aim to raise 410.54 billion rupees ($4.73 billion) through bonds maturing from five years to 30 years.
This would be followed by New Delhi’s sale of bonds worth 320 billion rupees on Friday, which will be the last scheduled auction from the central government for this financial year.
The supply comes at a time when investors are wary of adding more longer-duration debt to their portfolios.
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Meanwhile, shorter-duration government bond yields moved with a downward bias as the Reserve Bank of India is due to conduct a $10 billion, three-year dollar/rupee buy/sell swap on February 28, with the first leg of the transaction settling on March 4.
This will shore up India’s banking system liquidity for up to three years, which has boosted demand for bonds of up to five-year maturities.
The operation is the latest tool used by the RBI to infuse durable liquidity into the banking system.
Since mid-January, the RBI has infused more than 3.6 trillion rupees into the banking system.
Overall, for borrowing costs to materially edge lower, “liquidity pipes will need to be oiled” to hasten transmission, DBS said in a note.
The central bank cut repo rate for the first time in nearly five years in February. Many market participants expect another rate cut in April.
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