India bonds gain as RBI support for rupee, dovish remarks calm jittery investors

MUMBAI: Indian government bonds ended higher on Monday, recovering from the previous session’s losses, as it tracked a sharp reversal in the rupee while dovish comments from the central bank chief lent further support.

The benchmark 10-year yield ended at 6.xx%, after closing at 6.5665% on Friday. Bond yields move inversely to prices.

The Reserve Bank of India likely intervened before the local spot market opened on Monday, and intermittently thereafter, helping the currency hold above its all-time low, traders said.

This helped the rupee end higher at 89.23, after hitting a fresh record low of 89.49 on Friday.

A sharp fall in the rupee could impact inflation and deter foreign investors from investing in Indian bonds.

Meanwhile, RBI Governor Sanjay Malhotra, in an interview to television channel Zee Business on Monday, said that there was scope to reduce policy interest rates further.

Separately, the market is also focused on the RBI’s next steps to manage liquidity as well as bond yields.

“Onshore bonds are treading water, awaiting cues on the central bank’s policy direction, support measures for the debt markets and the overall liquidity stance,” said Radhika Rao, executive director and senior economist at DBS Bank.

The RBI bought bonds worth 148.10 billion rupees ($1.66 billion) in the week ended November 14, after purchasing 124.70 billion rupees in the prior week.

The purchases have had little effect on the market, as traders are confident that they were aimed at replacing maturing holdings rather signalling lower yields.

Meanwhile, India’s economy likely grew 7.2% in the July-September quarter, according to a Reuters poll, after expanding 7.8% in April-June. The official data will be released on Friday.

RATES

India’s overnight index swap (OIS) ended lower, tracking government bond yields as well as favoured by Malhotra’s comments.

The one-year OIS rate ended at 5.44%, while the two-year rate closed at 5.4350%. The five-year dropped 6 bps to settle at 5.7125%.