India bonds may open marginally higher; traders eye larger cues

MUMBAI: Indian government bonds are likely to rise slightly at the open on Wednesday, as underlying sentiment favours the bulls, but investors will be cautious as the benchmark bond yield has been unable to break past a key level.

The yield on the 10-year benchmark note is expected to move between 6.49% and 6.52%, after ending at 6.5101% on Tuesday, a trader at a private bank said.

Bond yields move inversely to prices.

“We could see bond oscillating between some gains and turning flattish, as traders are still avoiding large positional calls even as supply side pressure has receded,” the trader said.

May be people are waiting for Friday’s supply to see whether the momentum persists, he added.

New Delhi will sell 15-year and 40-year bonds worth a total of 280 billion rupees ($3.15 billion) on Friday.

This comes on the back of strong demand for state debt sale on Tuesday, with states planning to raise 2.82 trillion rupees - lower than most market estimates - through the sale of bonds in the December quarter.

“Market participants had anticipated higher borrowing (rates) since states typically ramp up their borrowing in the second half of the financial year, particularly in the third and fourth quarters,” Nuvama Fixed Income Research said.

State debt supply will be further boosted after four major state-owned banks raised their internal limits to invest in these securities, per five treasury officials.

Meanwhile, most market participants now expect the Reserve Bank of India to cut rates in December, after Governor Sanjay Malhotra’s last week.

The RBI kept its policy rate unchanged on October 1, but said low inflation has opened up policy space for supporting growth.