MUMBAI: Indian government bonds were stuck in a limbo on Tuesday, as traders slowed activity, awaiting clarity on the central bank’s rate cut trajectory, and as banking liquidity remained tight.
The yield on the benchmark 10-year bond ended at 6.3069%, compared with Monday’s close of 6.2996%.
Bond yields move inversely to prices.
India’s banking system liquidity surplus narrowed to a seven-week low on Monday due to tax outflows. The surplus dropped to 2.4 trillion rupees ($27.83 billion), the lowest since June 1, from 3.04 trillion rupees in the previous session. “Bonds are expected to remain rangebound till the Reserve Bank’s policy decision in August,” a trader at a private bank said.
Key triggers to watch for would be the Federal Reserve’s policy decision due this month as well as demand for New Delhi’s debt sale on Friday, traders said.
Some investors are betting on another rate cut in India since the June inflation reading showed that prices rose in the slowest pace in 6 years.
India bonds advance as traders build positions for another rate cut
“The latest CPI print reinforces the benign trajectory driven by moderating food prices as well as benign commodity prices. This increases the probability of incremental rate cuts, and we expect one more policy rate cut of 25 bps by December,” said Puneet Pal, head of fixed income at PGIM India Mutual Fund.
Over the last one month, foreign investors have net bought 129 billion rupees of Indian bonds linked to global indexes after selling more than 330 billion rupees in the first two-and-a-half months of the financial year that started on April 1, clearing house data showed.
Rates
Traders likely reversed receive positions in India’s 1-year overnight index swap rate, while long-term rates remained rangebound.
The one-year OIS rate rose over 1 basis point to 5.50%, while the two-year OIS rate was little changed at 5.46%. The liquid five-year OIS remained flat at 5.68%.
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