MUMBAI: Indian government bonds dipped slightly on Wednesday after a short-lived rally on hopes of a potential inclusion in the Bloomberg Global Aggregate Index.
The benchmark 10-year closed at 6.5323%, against 6.5258% in the previous session.
Indian newspaper Business Standard on Tuesday reported that major foreign investors responded favourably to Bloomberg Index Services’ consultation on adding India’s fully accessible route (FAR) government bonds to its flagship Bloomberg Global Aggregate Index.
“The probable inclusion of FAR bonds in the Bloomberg Global Aggregate Index (AUM $2.5 trillion) could attract $25–30 billion of inflows into long-duration bonds, making the long bonds segment attractive,” strategists at Axis Asset Management said in a note.
The news fueled buying on Tuesday, driving down yields across the curve by 2-3 basis points, but the rally was short-lived as a sharp drop in purchases by a key investment category offset the optimism.
Buying by the “others” group, which includes the Reserve Bank of India, plummeted to about 2 billion rupees ($22.58 million) on Tuesday, compared with the daily average of 50 billion rupees in the week ended November 7, CCIL data showed.
Traders are now closely watching for any central bank action to pump liquidity as well as cues on the RBI’s rate easing path before taking strong directional calls.
“As liquidity moves from surplus towards neutral, we anticipate the RBI conducting open market operations (OMOs),” Axis AMC strategists said.
Focus is also on the minutes of the Federal Reserve’s October meeting, due after market hours on Wednesday, for cues on the U.S. rate-easing trajectory.
RATES
India’s overnight index swap rates fell on Wednesday, supported by a stronger rupee that bolstered foreign demand for government bonds.
The one-year OIS nearly 1 bp down at 5.45%, the two-year inched down to 5.45%, and the liquid five-year eased about 1.25 bps to 5.73%.
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