Indian benchmark bond logs biggest weekly fall in nearly four months on post-policy selloff

MUMBAI: India’s benchmark government bond posted its biggest weekly fall in nearly four months, as traders trimmed positions amid supply worries and declining prospects of further interest rate cuts by the Reserve Bank of India.

The benchmark 10-year yield settled at 6.5931% after ending at 6.5832% on Thursday. It rose 10 basis points this week, its biggest jump since the week ended August 18.

Bond yields rise when prices fall.

The benchmark bond tanked this week, even after the RBI cut rates by 25 bps last Friday and announced measures to infuse liquidity.

Bond market sentiment soured on the exclusion of the 10-year note from RBI’s bond purchases on Thursday, as it could have ramped up demand, traders said.

After the policy verdict, there was also strong paying in overnight index swaps, especially from offshore, which spurred a selloff in the Indian bond market, traders said.

The jump in rates was also driven by rising global bond yields. In the U.S., the 10-year Treasury yield has gained nearly 15 bps so far this month.

Separately, RBI’s bond-buying for this financial year has reached a record high, with another 500 billion rupees of purchases scheduled for Thursday.

The market is hopeful the 10-year note will be included in the upcoming open market purchases.

“Now OMO (open market operations) papers and speculation of next OMO announcements will be looked into before budget,” said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank.

RATES

India’s overnight index swaps dipped on Friday, with traders receiving after strong paying pressure this week.

The one-year OIS rate shed 1.25 bps to end at 5.4575% and the two-year swap fell 1 bp to 5.55%. The five-year OIS rate ended steady at

5.9175%.