India bonds rangebound ahead of fresh debt supply

Indian government bonds hovered in a narrow band early on Friday, as investors braced for a fresh debt supply, with attention centered on demand for the long-tenor security.

The benchmark 10-year yield was at 6.5270% as of 10:50 a.m. IST.

It closed at 6.5324% on Thursday.

The RBI will sell 300 billion rupees ($3.38 billion) of bonds later in the day, including a 5-year and a near 50-year note.

The market is concerned about a supply glut in long bonds as demand from key players such as insurance and pension funds has slowed, traders said, adding that the auction cut-offs will be key to gauging the steepness of the curve.

“Some buying seems to have come in the longs this week, however 50-year auctions can be tricky,” a fund manager at an insurance firm said.

Focus is also on the Reserve Bank of India’s interest rate path with talks of a trade deal with the United States underway.

The strong domestic economy and a smaller-than-expected hit to exports are giving New Delhi more room to negotiate a trade deal with Washington, sources and analysts told Reuters.

Sources aware of the trade talks, said they expect Washington to roll back the 25% tariff linked to Russian oil purchases, and eventually move toward a 15% overall rate.

Lesser impact on growth from tariffs can reduce the urgency for the RBI to cut rates, traders said.

Traders will get further cues on the RBI’s rate easing path after the release of second-quarter gross domestic product (GDP) data next week.

India’s economy grew 7% in the July-September quarter and is expected to expand 6.8% this financial year, according to the central bank.