MUMBAI: Indian government bond yields fell in early trading hours on Monday, as traders mopped up debt ahead of the central bank’s large bond purchases scheduled for this week.
The benchmark 10-year yield was at 6.3299% as of 10:20 a.m. IST, compared with its previous close of 6.3538%.
“Focus is on open market bond buying from the RBI this week, so traders are building positions,” trader with a private bank said.
The overall market sentiment is bullish with the Reserve Bank of India set to buy bonds worth 750 billion rupees ($8.90 billion) in two tranches this week, which will further shore up liquidity and aid policy transmission.
The central bank’s consistent liquidity infusion pushed the banking system liquidity surplus to a two-week high of 1.58 trillion rupees as of May 2.
The widening liquidity surplus, a favourable inflation rate and fears of sluggish growth have ramped up rate cut bets in the market, with traders expecting further cuts of 50-75 basis points, traders said.
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The State Bank of India also expects the RBI to cut rates by 75 basis points over June and August.
The central bank had slashed its key interest rate by 25 basis points each in February and April.
Traders will also watch for the Federal Reserve’s policy decision due on Wednesday to gauge the United States’ interest rate trajectory, which could have a bearing on demand for Indian government bonds.
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