MUMBAI: Indian government bonds ended largely unchanged on Thursday as uncertainty over the fate of the key repo rate the following day discouraged traders, even as the benchmark bond rose, with traders hopeful of liquidity infusion from the central bank.
The benchmark 10-year bond yield ended at 6.5267%, after closing at 6.5369% on Wednesday. Bond yields rise when prices fall.
The market has been divided over the odds of a rate cut at the Reserve Bank of India’s policy decision, due on Friday, and now sees a wider range of possible outcomes, including steps to add liquidity to the banking system.
“The decision will be dictated by the weightage that the MPC assigns to below-target inflation, which has left a sizeable real rate buffer, or the firm growth report,” said Radhika Rao, executive director and senior economist at DBS Bank.
“Our baseline view is for a modest cut on the back of an evolving inflation trajectory for FY26. Announcements on potential open market operations might be made outside of the rate decision timeline.”
Indian bonds slip; central bank not major buyer, state banks lead
Investors have been unsettled, with strong growth data and a weakening rupee testing traders’ conviction.
India’s economy expanded 8.2% in the July–September quarter, beating expectations, while retail inflation eased to a record-low 0.25% in October, with the divergence raising questions about the fate of the rate cut, analysts said.
Meanwhile, the market will also focus on the fresh debt supply. New Delhi plans to sell 320 billion rupees ($3.56 billion) of the 10-year 6.48% 2035 bond - will replaces the existing benchmark in coming days - after the policy decision.
Rates
India’s overnight index swap (OIS) rates ended flat with the one-year swap rate almost pricing out the rate cut possibility.
The one-year OIS ended at 5.4775% and the two-year swap ended at 5.52%. The five-year OIS rate settled at 5.82%.
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