MUMBAI: Indian government bonds ended lower on Wednesday, as the central bank’s move to withdraw funds from the banking system dampened investor sentiment.
The yield on the benchmark 10-year bond ended at 6.3136%, compared with Tuesday’s close of 6.3053%. The five-year 6.75% 2029 bond yield ended at 5.9704%, up from the previous close of 5.9569%.
Bond yields move inversely to prices.
The Reserve Bank of India pulled out 973.15 billion rupees ($11.36 billion) through a two-day variable rate reverse repo (VRRR) earlier in the day.
This was in addition to the 1 trillion rupees that the RBI withdrew from the system via a seven-day liquidity withdrawal operation last week.
The daily average liquidity surplus stood at about 3.85 trillion rupees so far this month, which is more than 1.5% of the banking system’s total deposits.
India bonds end lower on tepid demand for state debt
Overnight rates rose, with the weighted average interbank call money rate and weighted average tri-party repo rate up by 10 to 15 basis points.
“In the near term, we do not expect the call rate to rise to the repo rate, as monetary policy focus remains on enhancing transmission of rate cuts. The quantum of VRRRs is expected to rise over the next few months as system liquidity rises,” IDFC First Bank said in a note.
Meanwhile, market continues to await clarity on a potential U.S.-India trade deal before taking a direction call.
The 10-year U.S. Treasury yield remained above 4.40% in Asian hours after President Donald Trump ramped up his trade war by sending out letters to key trading partners, notifying them of sharply higher tariffs from August 1.
Rates
India’s overnight index swap (OIS) rates ended higher, as paying pressure was witnessed across the curve after the RBI’s surprise liquidity withdrawal plan.
The one-year OIS rate ended at 5.53%, and the two-year OIS rate ended at 5.50%. The liquid five-year was little changed at 5.70%.
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