MUMBAI: Indian government bond yields rose in early deals on Wednesday, led by an uptick in the five-year yield, as traders reacted to the central bank’s plan to withdraw excess liquidity by holding a variable reverse repo auction.
The yield on the benchmark 10-year bond was at 6.2626% as of 10:20 a.m. IST, compared with Tuesday’s close of 6.2504%.
The five-year 6.75% 2029 bond yield was at 6.0213%, up from the previous close of 5.9870%.
The Reserve Bank of India (RBI) said after market hours on Tuesday that it will conduct a seven-day variable reverse repo rate auction worth one trillion rupees ($11.64 billion) on Friday.
Earlier this month, Reuters reported that the RBI could start conducting these VRRR auctions to withdraw surplus liquidity as and when required.
“There will be more selling in the short-term papers,” a trader with a private bank said. “If liquidity is sucked out, focus will shift from the short-end to long-end.”
India’s banking system liquidity surplus has remained elevated throughout June despite tax outflows and has averaged 2.76 trillion rupees per day this month, comfortably above 1% of bank deposits.
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The longer-dated bonds are likely to find support from lower US Treasury peers.
The 10-year US bond yield was at 4.30%, after hitting a seven-week low of 4.2850% on Tuesday.
Meanwhile, Iran and Israel seem to be holding up a fragile ceasefire brokered by US President Donald Trump, which is providing some comfort to the market.
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