India bonds end lower; fall for second week as supply concerns linger

MUMBAI: Indian government bonds ended down on Friday, and also moved lower for a second consecutive week as a new debt auction added to supply amid tepid demand and record borrowings this quarter.

The benchmark 10-year 6.48% 2035 bond yield closed at 6.6401%, after ending at 6.6290% on Thursday. Bond yields move inversely to prices.

New Delhi raised 290 billion rupees ($3.22 billion) through the sale of 15- and 40-year bonds at cutoff yields that were largely in line with market expectations.

“People had anticipated weak bidding, but since the cutoff yields did not drop further, there was some recovery in prices from early losses,” a trader with a private bank said.

Traders continue to worry about the capacity of the market to absorb record debt supply of 8 trillion rupees in the January-March period, including 5 trillion from states.

Bonds have been under pressure even though the Reserve Bank of India has bought debt. It has already purchased 2 trillion rupees of bonds since December and is slated to buy papers worth another 1 trillion rupees in January.

Market attention will now shift to India’s retail inflation data for December, due on Monday.

“The waning of favorable base effects begins reflecting for December onwards, leading to higher prints in headline CPI inflation, despite the food inflation data showing signs of moderation,” STCI Primary Dealer said in a note.

The primary dealership expects the inflation reading at 1.2%, up from 0.71% in November.

Separately, all eyes will be on the potential inclusion of Indian bonds in Bloomberg’s Global Aggregate Index, with the announcement expected next week.

RATES

India’s overnight index swap rates moved marginally higher in the absence of positive triggers.

The one-year OIS ended at 5.49%, while the two-year OIS rate ended at 5.5850%. The liquid five-year OIS rate rose 3 bps to end at 5.5975%.