India bonds seen opening steady as focus shifts to supply after infusion

MUMBAI: Indian government bonds are likely to tread water in early deals on Friday, as traders brace for fresh supply, after gaining a day earlier as the country’s central bank completes its planned liquidity infusion.

The benchmark 10-year yield is likely to drift in a narrow 6.55% to 6.59% band till the debt auction, a trader with a private bank said.

It ended at 6.5738% on Thursday.

Bond yields rise when prices fall.

New Delhi plans to raise 300 billion rupees ($3.33 billion) through bond sales, including 180 billion rupees from the liquid five-year note later in the day.

“Demand at the auction will set the tone for remaining trading days of the month, as banks have sufficient cash after the bunched-up liquidity infusion from the central bank in the last few days,” the trader said.

The Reserve Bank of India bought bonds worth 500 billion rupees on Thursday, its second such purchase in a week, bringing its aggregate bond purchases in this calendar year to 6.50 trillion rupees, a record high.

Earlier this week, the central bank also conducted a foreign exchange swap for a three-year period, which led to an infusion of around 450 billion rupees of liquidity into the banking system, taking the total infusion to 1.45 trillion rupees over the last few days.

Pressure on bonds will, however, continue as foreign investors remain on the selling side with net exits for the month at nearly 106 billion rupees.