MUMBAI: Indian government bond yields moved marginally lower in early deals on Wednesday, ahead of the start of the central bank’s liquidity infusion into the banking system later this week.
Bond yields rose in the previous session after a brief fall due to profit booking, traders said.
The 10-year bond yield was at 6.6846% as of 10:00 a.m. IST, compared with the previous close of 6.6888%.
The yield hit a near three-year low of 6.6254% on Tuesday.
As part of a large liquidity package announced on Monday, the Reserve Bank of India will buy bonds worth up to 200 billion rupees ($2.31 billion) on Thursday and conduct a $5 billion dollar/rupee buy/sell swap a day later.
“Underlying sentiment is supportive for a bullish move, but traders are holding back to see the central bank’s response for the first debt purchase, which will be a crucial signal for yields,” a trader with a state-run bank said.
On Monday, the RBI announced a host of measures to infuse up to 1.50 trillion rupees into the banking system, which includes bond purchases of 600 billion rupees and a 56-day repo for 500 billion rupees, as well as the FX swap.
Analysts said these measures could be a precursor to a rate cut in February.
India’s federal budget announcement is due on Saturday, followed by the Reserve Bank of India’s monetary policy decision on Feb. 7.
India bond yields to tumble after RBI’s liquidity action
Market participants would focus on the fiscal deficit target as well as borrowing numbers for the next financial year in the budget, while awaiting announcements to boost slowing growth.
Economists in a Reuters poll expect New Delhi to stick to the fiscal deficit target of 4.5% of gross domestic product, with gross borrowing forecast at 14.28 trillion rupees.
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