Indian bonds slip; central bank not major buyer, state banks lead

MUMBAI: Indian government bonds slipped in early trade on Wednesday, giving back part of the prior session’s gains after data showed the investor category that includes the Reserve Bank of India was not a major buyer, countering market speculation.

The benchmark 10-year yield was at 6.5347% as of 10:15 a.m. IST, compared with 6.5155% at Tuesday’s close.

It had dropped six basis points on Tuesday, helped by late-session demand that many dealers initially attributed to RBI purchases.

Bond yields rise when prices fall.

“It is clear that the rally was driven by some large state-run banks and hence we have started seeing some reversal today, with rangebound moves expected in the run up to monetary policy decision,” trader with a primary dealership said.

Data showed that the “Others” category - which consists of RBI and other participants - bought bonds worth only 1.17 billion Indian rupees ($13 million) on a net basis on Tuesday.

State-run banks emerged as the largest buyers of bonds, which pushed yields down, and traders lack clarity whether this will sustain till Friday.

Hopes of a rate cut at the monetary policy decision due on Friday have diminished as a slumping rupee and strong growth data toughen the path for the RBI.

India’s economy expanded at a sharper-than-expected clip of 8.2% in the July-September quarter, but retail inflation slowed to a record-low 0.25% in October, with the divergence raising doubts about the need for a rate cut, analysts said.