India bonds dip before debt sale; key level for 10-year yield unbreached

MUMBAI: Indian government bonds eased slightly in early deals on Thursday, as traders sold current papers to prepare for fresh debt sale due the next day.

The yield on the benchmark 10-year note was at 6.5170% as of 10:10 a.m. IST, after ending at 6.5030% on Tuesday. The yield has been struggling to breach the psychologically key level of 6.49% throughout this week.

Bond yields move inversely to prices.

“This was the fear, that if there is no convincing break of 6.49%-6.50% levels, we could see reversal again, as there are heavy short positions in the benchmark paper,” trader with a primary dealership said. “Still, 6.52% level on the upside should hold at least till the debt sale tomorrow.”

New Delhi will sell 15-year and 40-year papers worth a total of 280 billion rupees ($3.16 billion) on Friday.

This comes on the back of strong demand at a state debt sale earlier this week, and a lower-than feared borrowing calendar for this quarter.

Some state-run banks have also raised their internal limits to invest in these securities, according to five treasury officials, improving demand-supply dynamics.

Bond market sentiment has improved after the Reserve Bank of India’s monetary policy decision last week, in which Governor Sanjay Malhotra said low inflation has opened up policy space for supporting growth.

Most market participants now expect the RBI to cut rates in December, with Nomura and MUFG eyeing a follow up rate cut in February as well.