India bonds rise before debt buy, RBI FX move ups bets of more liquidity

MUMBAI: Indian government bonds moved higher on Wednesday, as market participants gear up for the central bank’s debt purchase on Thursday and as intervention in foreign exchange market lifted hopes of more liquidity infusion.

The benchmark 10-year yield was at 6.5692% as of 10:00 a.m. IST, after ending at 6.5745% on Tuesday.

Bond yields fall when prices rise. The Reserve Bank of India (RBI) intervened aggressively on Wednesday to boost a struggling rupee after the currency hit record lows for four consecutive trading sessions.

The rupee rallied more than 1% to 90.10.

“The way the central bank has intervened today has given some confidence boost to bond traders that the RBI will continue its liquidity infusion even after tomorrow’s debt purchase,” a trader with a state-run bank said.

Bonds gained on Tuesday in anticipation of the Reserve Bank of India aggressively buying the former benchmark 6.33% 2035 bond at a scheduled 500 billion rupees ($5.53 billion) open market purchase on Thursday.

Last Thursday, the central bank bought a similar quantum of bonds at higher-than-estimated prices, leading to a brief rally in prices.

The RBI’s bond-buying this financial year has already hit a record high.

Bond yields have seen upward pressure on bets that the central bank’s rate cut cycle is over after it reduced rates by 25 basis points earlier this month.

Foreign investors have also been cashing out their investments this month, selling more than $1 billion worth of Indian bonds on a net basis on bets of a prolonged pause as well as ahead of the year end.