India bonds close higher as traders positive ahead of RBI debt purchase

MUMBAI: Indian government bonds ended higher on Tuesday as market participants geared up for central bank’s debt purchase later in the week, which will include liquid and former benchmark paper.

The benchmark 10-year yield ended at 6.5745% after closing at 6.5931% on Monday. Bond yields fall when prices rise.

The Reserve Bank of India is scheduled to buy bonds worth 500 billion rupees ($5.50 billion) on Thursday, including the former benchmark 6.33% 2035 note.

Following a rate cut by the RBI on December 5, bond yields have been facing upward pressure on bets that the easing cycle is over, with the focus shifting to the demand-supply mismatch.

Last week, the central bank purchased a similar quantum of bonds at higher-than-estimated prices, which pushed central bank’s bond purchases to a record high for this financial year.

“While RBI’s liquidity-easing measures that were announced in policy meeting have already started to take effect, we expect similar quantum of liquidity-easing measures to be announced over January-February,” ICICI Securities Primary Dealership said.

“The risk to these estimates is on the upside given continued-but-lighter intervention by RBI in forex markets.”

Foreign investors have also been cashing out their investments this month and have sold bonds worth over $1 billion on a net basis on bets of a prolonged pause as well as ahead of the year end.

Rahul Bhuskute, chief investment officer at Bharti AXA Life Insurance said the recent surge in ultra-long bond yields has made them attractive for building fresh positions.

RATES

India’s overnight index swap rates rose at the shorter end, while remaining steady at the long end.

The one-year OIS rate ended at 5.4650% and the two-year swap rate ended at 5.55%. The five-year OIS rate closed little changed at 5.8975%.