India bonds stuck in tight range as large state debt supply, tumbling rupee weigh

MUMBAI: Indian government bond prices moved in a narrow band on Tuesday, with traders bracing for a heavier-than-scheduled state debt supply and a tumbling rupee - which hit a lifetime low on the day - curbing risk appetite.

The benchmark 10-year yield was at 6.5605% as of 10:10 a.m. IST.

It settled at 6.5732% on Monday, its highest level since September 30.

Bond yields rise when prices fall.

The 10-year yield fell slightly as some traders covered short positions after a weak open but a slumping rupee and caution over state debt auction cutoffs are expected to keep the buying in check, traders said.

The rupee hit a new lifetime low of 89.76 versus the US dollar on Tuesday, pressured by a mix of speculative positioning and corporate dollar demand.

This is definitely not a market where you can take a sizable long-term bet, a trader at an asset management company said.

“The state debt supply is also too big considering the current situation.” Indian states’ issue of 4-year to 30-year bonds worth 313.5 billion rupees ($3.50 billion) later in the day is well above the previously scheduled 210 billion rupees.

The demand in the auction will be key as an acceleration in cut-off yields could push the 10-year yield to test 6.60%, traders said.

Investors are now keenly awaiting the Reserve Bank of India’s policy outcome due on December 5, where the fate of the key repo rate hangs in the balance, after the divergence between sharp economic growth and a record low retail inflation has raised doubts about further interest rate cuts.