MUMBAI: Indian government bond prices are likely to open marginally higher on Tuesday as investors await a widely expected interest rate cut from the central bank later this week.
The 10-year bond yield is likely to move between 6.64% and 6.68%, a trader with a private bank said, compared with the previous close of 6.6665%.
“Market has been taken over by bulls and barring some profit-taking, there is not much selling interest, so we could see a further nudge downwards to bond yields,” the trader said.
The Reserve Bank of India more than doubled bond purchases in the secondary market, with its net purchases reaching 208.50 billion rupees ($2.40 billion) in the week ended Jan. 24, after buying bonds worth 101.75 billion rupees in the previous week.
It has also bought bonds worth 200 billion rupees in an open market auction as part of its liquidity infusion package.
Of the total purchases, one-fourth comprised the benchmark paper.
The RBI conducted a $5.1 billion forex swap last week.
It will also undertake a 56-day variable rate repo on Feb. 7, followed by additional bond purchases worth 400 billion rupees later this month.
Indian bond yields dip on optimism around central bank’s purchases, rate move
The RBI’s policy decision is due on Feb. 7, and economists are expecting a 25-basis-point rate cut.
Meanwhile, Sandeep Yadav, head of fixed income at DSP Mutual Fund, said the 10-year bond has become attractive, which will get a push from the central bank’s bond purchases as well as the anticipated rate cut.
India is targeting a gross borrowing of 14.82 trillion rupees in the next financial year, up from 14.01 trillion rupees this year, but market participants expect the supply would be absorbed without any major impact on yields.
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