MUMBAI: Indian government bonds are expected to trade in a tight range on Wednesday as market participants await a domestic inflation report due later in the day, with the results of the central bank’s debt purchase also in focus.
The benchmark 10-year yield is likely to move between 6.68% and 6.71%, a trader with a private bank said, compared with its previous close of 6.6938%.
“We should see a quiet opening, with major focus on the results of the open market bond purchase from the central bank.
The inflation reading will also be crucial and a larger-than-expected drop could lead to a mini rally in prices,“ the trader said.
The Reserve Bank of India will purchase 500 billion rupees ($5.73 billion) worth of government bonds maturing from 2029 to 2039.
This would be followed by a similar-sized bond purchase on March 18.
The central bank has already bought bonds worth 1 trillion rupees through OMOs over the last two months, and banks have aggressively offered their securities at higher-than-prevailing yields to free up space in their treasury portfolios.
Traders would be eyeing the levels at which the central bank accepts these offers as a cue to the direction for yields. Meanwhile, India’s retail inflation data for February is due at 4:00 p.m. IST on Wednesday and a Reuters poll pegs the reading at 3.98%, down from 4.31% in January.
India bond yields seen in narrow range before state debt sale
This would be the first time in six months that the reading would ease below the central bank target of 4%.
The inflation numbers are likely to cement expectations for a back-to-back interest rate cut in April.
A broad-based moderation in food inflation, led by perishables, is likely to be the main reason behind the slower headline print in February, DBS said in a note.
The inflation report would be followed by US retail inflation data, which will be released after Indian market hours on Wednesday.
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