India bond yields to be range-bound; second-half borrowing plan major trigger

MUMBAI: Indian government bond yields are expected to start the week little changed, with the government’s borrowing calendar for the second half of this financial year set to be the major trigger ahead of the local central bank’s monetary policy decision.

The yield on the 10-year benchmark note is expected to move in the 6.48%-6.52% range, said a trader at a private bank. It closed at 6.4885% on Friday.

“The issuance pattern for October-March holds the key for further directional trigger for bonds, followed by the central bank monetary policy decision, and till then we may be in a narrow range,” the trader said.

New Delhi is scheduled to borrow 6.82 trillion rupees ($77.42 billion) via the sale of bonds in the second half, in which the borrowing mix would be crucial.

The calendar’s release, scheduled for the end of September, comes at a time when market participants remain cautious with regard to longer duration supply.

India 10-year bond sees second weekly fall on Fed letdown

In a round of consultations earlier this month, multiple market participants suggested to the Reserve Bank of India that it reduce the share of ultra-long bonds and cut weekly auction sizes.

Traders will also remain attentive to states’ quarterly borrowing calendar, which should be released around the same period.

In a meeting last week with state government officials, the RBI asked states to spread their borrowing across tenures rather than focusing on long-term bonds and to communicate fundraising plans more precisely to the markets.

Rates

India’s overnight index swaps are expected to remain in a narrow range after witnessing a fall in the previous session.

The one-year OIS rate ended at 5.4450%, while the two-year OIS rate closed at 5.4150%.

The liquid five-year OIS rate rose 3 bps to settle at 5.7050%.