India bonds flat as supply pressure meets RBI’s debt-buy boost

MUMBAI: Indian government bonds ended little changed on Monday as persistent supply worries were

countered by a boost from the inclusion of a former benchmark paper in this week’s central bank open-market purchase offered some support.

The benchmark 10-year yield ended at 6.5931%, unchanged from its closing level on Friday. The 6.33% 2035 bond

yield ended a touch higher.

Bond yields move inversely to prices.

“There is a lot of supply pressure building up, especially for the last quarter, so things may remain tough for the bond market,” said Kruti Chheta, fund manager and fixed income analyst at Mirae Asset Investment Managers (India).

The Reserve Bank of India will buy bonds worth 500 billion rupees ($5.51 billion) on Thursday and has included liquid

papers, such as the 7.18% 2033 and former benchmark 6.33% 2035 bonds.

This comes after the central bank bought a similar quantum of bonds last week at higher-than-estimated prices, which

sparked a brief rally.

The RBI’s bond buying for this financial year has already hit a record high, with markets anticipating more purchases of about 1-2 trillion rupees in the last quarter of the fiscal year.

However, any rally in bond prices lately has been running into supply headwinds. The benchmark bond yield rose 10 basis points last week, its biggest jump since the week ended August

Bond yields have risen since last week as expectations of a prolonged pause by the central bank and demand-supply mismatch have dominated trading.

Foreign investors also turned cautious, selling the most global index-linked bonds in over half a year in the week of December 12.

RATES

India’s overnight index swap rates were largely unchanged as traders took a breather after last week’s sharp moves.

The one-year OIS rate ended at 5.4575%, while the two-year swap rate closed at 5.5375%. The five-year OIS rate settled at 5.9%.