MUMBAI: Indian government bonds rose slightly on Wednesday, buoyed by foreign inflows and a growing liquidity surplus in the banking system.
The yield on the benchmark 10-year bond ended at 6.2892%, compared with its previous close of 6.2927%. The five-year 6.75% 2029 bond was at 5.9522% after ending at 5.9653% on Tuesday.
Bond yields move inversely to prices.
Traders lapped up debt through the day as the central bank refrained from announcing further liquidity withdrawal measures, easing earlier concerns.
“The Reserve Bank did not announce any fresh VRRR auctions, which was a relief for the market,” said Umesh Tulsyan, managing director at Sovereign Global Markets.
“Foreign investors have also been buying in the last three sessions, which is another positive.”
These investors bought bonds worth 104 billion rupees ($1.21 billion) on a net basis over the last three sessions.
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This helped push up the banking system liquidity surplus to 3.3 trillion rupees as on July 1.
A seven-day VRRR is set to mature on Friday, after which traders will closely watch for rollovers as call money rates have once again dipped below the RBI’s repo rate, they said.
India’s weighted average interbank call money rate fell to 5.28% and weighted average TREPS were at 5.14%, a day after touching the RBI’s policy rate.
Meanwhile, DBS Bank expects India’s growth and inflation to undershoot the central bank’s estimates for this financial year, pegging growth estimates at 6.3% and inflation at 3.5% compared to the RBI’s projections of 6.5% and 3.7%.
Rates
India’s overnight index swap rates barely changed during the day amid shallow trading volumes.
Traders are eyeing a spread compression trading strategy between short and long-end overnight index swap rates.
The one-year OIS rate was steady at 5.52%, while the two-year OIS rate was little changed at 5.48%. The liquid five-year dipped 1 basis point to 5.67%.
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