India bond bulls, bears nervous before RBI decision

MUMBAI: Indian government bonds are expected to remain largely unchanged on Friday, as markets await the central bank’s monetary policy decision for which both bulls and bears have failed to reach a consensus.

The benchmark 10-year yield is likely to drift in a 6.52%–6.53% band till the monetary policy decision due at 10:00 a.m. IST, a private-bank trader said, after ending at 6.5267% on Thursday. Bond yields rise when prices fall.

“It is after a long time that we are heading towards a monetary policy where all sections of the markets are jittery, as this one has literally turned out to be a coin toss,” the trader said.

The market is split over the odds of a rate cut at the Reserve Bank of India’s policy decision, and now sees a wider range of possible outcomes, including steps to add liquidity to the banking system.

In November, RBI Governor Sanjay Malhotra said he saw scope for rates to come down. However, that was followed by data that complicated market expectations.

While India’s economy’s sharper-than-expected expansion in the July-September quarter caused some to doubt the need for a rate cut, record-low inflation in October pointed to room for further easing.

The policy decision will be followed by a debt auction, in which New Delhi will sell 6.48% 2035 paper worth 320 billion rupees ($3.56 billion), and this will replace the existing benchmark note soon.

RATES India’s overnight index swap (OIS) rates are expected to see shallow trading interest until the monetary policy decision even

 as the one-year swap rate has priced 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%.