Investor appetite lifts India long bonds; benchmark flat as supply looms

MUMBAI: India’s longer duration bonds ended higher amid continued strong demand from long-term investors on Wednesday, while the benchmark 10-year bond gave up gains to end little changed ahead of its auction later in the week.

The benchmark 6.48% 2035 bond yield ended at 6.6777%, after closing at 6.6812% on Tuesday. Yields on 30-40 year bonds fell 4-5 basis points. Bond yields move inversely to prices.

“Given the steepness of the yield curve, the long-end offers reasonable value,” said Abhishek Bisen, fixed income head at Kotak Mutual Fund.

On Tuesday, Reuters reported that the Reserve Bank of India has met multiple market participants, with the common feedback being to keep the proportion of ultra-long bonds in India’s debt supply unchanged, or to reduce it.

Bonds with ultra-long maturity have taken more pain than other parts of the yield curve for most of the financial year ending March, as demand from insurers and pension funds that typically make up the bulk of investors in the segment fell short of supply.

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Investors in the so-called “others category” net bought bonds worth 74.84 billion rupees ($823.12 million) on Tuesday, the biggest single-session purchase since June 2023, according to data from the clearing house.

The category includes insurers, pension funds, provident funds, corporates, and the RBI. Large-scale purchases from this category are often seen by traders as a sign of secondary market bond-buying by the central bank.

Meanwhile, New Delhi will sell 320 billion rupees of the 10-year benchmark 2035 bond on Friday, the note’s last sale this financial year. Demand and cutoff yield at the auction will be key directional drivers for March.

Rates

India’s overnight index swap (OIS) rates were largely unchanged amid a lack of fresh triggers while the ultra-short end witnessed heavy activity. Trades worth 77 billion Indian rupees ($846.73 million) struck in 2-month OIS, over double the typically most-liquid five-year OIS.

The one-year OIS rate ended at 5.495%, while the two-year OIS rate closed at 5.615%. The five-year OIS rate ended at 6.045%.