India bonds rise after RBI completes planned debt purchases

MUMBAI: Indian government bonds ended higher on Thursday after the central bank’s completed its planned 1.45 trillion-rupee ($16 billion) liquidity infusion, prompting traders to add positions.

The benchmark 10-year yield ended at 6.5738%, after closing at 6.5995% on Wednesday. Bond yields move inversely to prices.

However, the second-most liquid former benchmark 6.33% 2035 bond ended lower, as the Reserve Bank of India did not accept bids aggressively at the open market operation (OMO), prompting traders to cut positions built ahead of the auction.

The RBI bought bonds worth 500 billion rupees ($5.5 billion) earlier in the day, taking its aggregate bond purchases in this calendar year to 6.50 trillion rupees, a record high.

“Conducting OMO purchases, whether primary or secondary in liquid securities would be more effective in broadening market participation and improving price discovery,” said Madhavi Arora, chief economist at Emkay Global Financial.

NEGATIVITY PERSISTS

Despite the bond buying, yields are hovering above levels seen before the central bank’s rate cut on December 5.

Foreign investors have turned heavy sellers of bonds ahead of year-end. They net sold $1.1 billion worth of bonds so far this month, which pushed yields higher, as market participants wager that the central bank’s rate-cut cycle is over.

The sale also accounts for a fourth of the purchases made by these investors in the July-November period.

RATES

India’s overnight index swap (OIS) rates eased slightly, tracking bond yields, after a sharp spike on Wednesday.

The one-year OIS rate ended at 5.475%, while the two-year swap rate ended at 5.56%. The five-year OIS rate settled lower at 5.91%.