Indian bonds extend rally on strong buying interest from banks, mutual funds

MUMBAI: Indian government bonds rose on Wednesday due to, according to traders, sustained buying interest from banks and mutual funds as market sentiment stayed positive following benign inflation data and the lack of negative news on the India-Pakistan clash.

The yield on the new 10-year benchmark bond maturing in 2035 fell 4 basis points (bps) to 6.2398% from its previous close of 6.2792%.

The yield on the prior benchmark bond was at 6.2855%, compared with 6.3289% in the previous session. It has dropped 7 bps in two sessions.

There was a heavy buying interest, said traders, as overall investor confidence was renewed after data showed India’s consumer price inflation eased to a near six-year low of 3.16% in April.

Traders had lightened their books during the India-Pakistan conflict – which flared up last week before the countries reached a truce over the weekend – and were waiting for any signs of relief and the inflation data to resume buying, a trader at a mutual fund said.

“Since there are no fresh negative triggers, investors will continue buying. There are more legs to this rally, especially as we are anticipating a large RBI (central bank) dividend payout.”

Indian bond yields slip as traders lap up debt after ceasefire

This payout to the government for fiscal 2025 is expected to be as much as 3 trillion rupees ($35.18 billion), traders said.

Meanwhile, stronger-than-expected demand for treasury bills pushed the auction cut-off yields below market expectations. The RBI set 91-day, 192-day and 364-day T-bill cut-off yields at 5.84%, versus expectation of 5.87%-5.88%, per a Reuters poll.

Rates

India’s overnight index swap (OIS) rates were flat-to-slightly-lower.

Traders reckoned that USD/INR non-deliverable swaps (NDS) offer an attractive way to wager on RBI rate cuts than on overnight index swaps (OIS), which have priced in easing policy.

The one-year OIS rate was down 1 bps at 5.62%, while the two-year rate was also down 1 basis point at 5.50%. The five-year rate was flat at 5.65%.