MUMBAI: Indian government bonds were steady in early trading on Thursday, with traders largely on the sidelines ahead of the weekly debt sale.
The benchmark 10-year bond yield was at 6.5926% as of 10:15 a.m. IST, after closing at 6.5997% in the previous session, its highest level since March 26.
A large debt sale will put pressure on bonds as supply continues to overshoot demand, traders said, but hopes of a central bank intervention is aiding sentiment.
New Delhi is set to sell bonds worth 320 billion rupees ($3.66 billion) on Friday.
The weekly auction will be a crucial indicator of demand after Indian states partially accepted bids on Tuesday, raising less-than-planned quantum after yields ran above estimates.
“The partial acceptance in SDL (state development loans) auction showed that states are uncomfortable borrowing at such high levels, which raised hopes that the RBI could intervene in some way,” a trader at a private bank said.
“But till there is any meaningful intervention, we don’t see much respite.”
Traders are calling for the Reserve Bank of India’s intervention with institutional buyers staying on the sidelines, pushing yields higher and threatening to stall monetary transmission, several market participants said.
The demand-supply dynamics in the Indian debt market have been knocked off balance since the government announced sweeping cuts to its goods and services tax, which stoked fears of wider fiscal burden and a heavier debt supply.
The benchmark bond yield has risen over 20 bps in the last seven sessions.
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