India bonds drop for third day as selling pressure refuses to abate
- Benchmark 10-year yield ended at 6.6649%after ending at 6.6161% on Tuesday
MUMBAI: Indian government bonds ended lower for a third consecutive session on Wednesday, as traders continued to trim positions amid supply worries and declining prospects of further domestic interest rate cuts by the Reserve Bank of India.
The benchmark 10-year yield ended at 6.6649%after ending at 6.6161% on Tuesday. The 6.48% 2035 bond yield ended at 6.6283%, against 6.5903% on Tuesday. Bond yields move inversely to prices.
The 10-year bond yield has risen 15 basis points so far this week, mainly driven by heavy paying in overnight index swaps.
Overseas investors and lenders have been net sellers for the past four sessions, while also aggressively paying in OIS, traders said, as they likely scaled back easing bets, while the swap market has now priced in a prolonged pause from the RBI.
The central bank not only surprised by cutting the policy rate but also inducted durable liquidity to ensure quicker monetary policy transmission, Krishna Bhimavarapu, APAC Economist at State Street Investment Management said.
“But factors beyond scope such as doubts on central and state borrowings in the face of both direct and indirect tax cuts and global volatility factors are impacting sentiment. Markets are also wondering if the easing cycle is completed, another uncertainty that is critical for yields.”
On Friday, the RBI reduced key interest rate by 25 bps and announced liquidity infusion through open market bond purchases worth 1 trillion rupees ($11.11 billion) and foreign exchange swap worth $5 billion.
Focus will also be on the U.S. Federal Reserve’s monetary policy decision due later in the day. While the Fed is widely expected to deliver a rate cut, the market fears hawkish guidance and a slower pace of easing in 2026.
RATES
India’s overnight index swap rates stayed mixed on Wednesday as heavy paying from offshore investors cooled off.
The one-year OIS rate ended at 5.48% and the two-year swap ended at 5.5875%. The five-year OIS rate closed at 5.9650%.
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