India bonds steady; mood tepid on RBI’s picks for bond buy

MUMBAI: Indian government bonds steadied early on Tuesday, pausing after a sharp selloff in previous sessions triggered by the central bank’s decision to exclude the most liquid benchmark paper from this week’s bond purchases.

The benchmark 10-year yield was at 6.5668%, as of 10:30 a.m. IST.

It ended at 6.5697% on Monday, rising more than five basis points.

The yield on the 6.48% 2035 note was up slightly at 6.5384%. Bond yields rise when prices fall.

The Reserve Bank of India will buy bonds worth 500 billion rupees ($5.55 billion), including papers maturing in four to 25 years, but not the most liquid 10-year benchmark.

“Including the 10-year note would have supported trading activity…anyone who was betting on the inclusion has cut positions,” a trader at a private bank said.

There is also growing conviction among some market participants that the RBI’s rate easing cycle is largely over, traders said.

Last week, the RBI cut its key repo rate by 25 bps and left the door open for further easing, while announcing steps to boost banking-sector liquidity.

“We see the easing cycle as effectively complete and scope for additional cuts as limited, unless growth surprises on the downside,” analysts at Goldman Sachs said.

A sharp surge in the five-year overnight index swap is reflecting this change in sentiment, as it rose 12 bps in the previous session - its biggest single-day jump since May 8 - amid aggressive position cutting from offshore investors.

Focus is also on the US Federal Reserve’s monetary policy decision due late on Wednesday.