MUMBAI: Indian federal bond yields inched lower on Wednesday as the central bank's buyback details announced late Tuesday boosted sentiment, with global risk aversion also aiding.
At 11:30 a.m. (0600 GMT), the new benchmark 10-year bond yield was trading at 8.81 percent, 3 basis points (bp) lower than its previous close. It is expected to move in the 8.80-8.85 percent range during the day.
Total volume on the central bank's electronic trading platform was at a low 24.45 billion rupees ($469.3 million) compared with 45 billion to 50 billion rupees normally dealt in the first three hours of trade.
"The OMO (open market operation) is expected to be a success. I expect more buybacks by the central bank as the liquidity deficit is not going to come down in a hurry," said Anindya Das Gupta, director and head of treasury at Barclays Bank.
The Reserve Bank of India said late Tuesday its up to 100-billion-rupee buyback of government bonds via open market operations would include the old 10-year benchmark bond, the 7.80 percent 2021.
The other papers to be bought back on Thursday are 7.99 percent 2017 bond, 7.83 percent 2018 bond and the 8.13 percent 2022 bond.
Banks borrowed 1.35 trillion rupees from the central bank's liquidity adjustment facility window, compared with 1.32 trillion rupees on Tuesday, both well above 495.25 billion rupees at the end of the first week of November.
Traders said risk aversion globally was also spurring buying of federal bonds.
Indian shares fell as much as 1.6 percent on Wednesday, a day before the expiry of derivatives contracts, as depreciating rupee threatened the corporate performance ahead, while global economic indications raising concerns about the world economic growth.
US Treasuries prices rose on Tuesday as weaker stocks and indications the Federal Reserve is mulling further economic stimulus underpinned a bid for government debt.
Lined up supplies during the week will weigh on sentiment, traders said.
India will sell 80 billion rupees worth treasury bills on Wednesday, ahead of a 130-billion-rupee bond sale on Friday.
"The market will remain rangebound in the near term in absence of a fresh trigger," Barclays Bank's Anindya Das Gupta said.
The benchmark five-year swap were down 2 basis points at 7.31 percent and the one-year rate was steady at 8.13 percent.