MUMBAI: Indian government bonds fell on Monday as investors held back from adding positions amid growing conviction that the Reserve Bank of India’s recent bond purchases were largely to replace maturing holdings rather than an effort to lower yields.
The benchmark 10-year note ended at 6.5435%. It closed at 6.5265% on Friday. Bond yields rise when prices fall.
Bonds have been declining since last few sessions, as traders said that the central bank’s recent purchases were likely aimed at replacing maturing holdings rather than signaling lower yields.
The RBI bought bonds worth 124.70 billion rupees ($1.41 billion) in the week ending November 7. Such purchases, reflected in the “others” category of investors, slowed in the last three sessions to a daily average of 11 billion rupees, compared with 50 billion rupees in the first six sessions of November.
“The bond market is still struggling to come to terms with the adverse demand supply dynamics even after the reduction in second half borrowing amounts at the longer end and the reduced state debt supply in this quarter, Puneet Pal, Head- Fixed Income, PGIM India Mutual Fund.
“The realization is dawning on the bond markets that we are at the end of the rate cutting cycle even though there can be one more rate cut.”
Meanwhile, the 10-year U.S. Treasury yield surged over 7 basis points in the previous two sessions, as investors pared expectations for a Federal Reserve rate cut at the December policy meeting.
RATES
India’s overnight index swap (OIS) rates ended higher tracking rise in local bond yields as well as Treasury yileds. The one-year OIS ended at 5.47%, while the two-year rate closed at 5.46%. The liquid five-year swap rate settled at 5.7550%.
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