Indian bonds extend fall as index snub continues to bite

MUMBAI: Indian government bonds fell for a second straight day on Wednesday, giving up their resilience from opening trades, as caution lingered following a surprise decision to leave the debt out of a global index.

The benchmark 10-year 6.48% 2035 bond yield was at 6.6399% as of 10:40 a.m. IST after ending at 6.6277% on Tuesday.

Bond yields move inversely to prices.

On Tuesday, Bloomberg Index Services deferred adding Indian bonds to its flagship Global Aggregate Index, disappointing investors who had viewed the inclusion as nearly certain.

The service provider said a number of respondents highlighted important operational and market-infrastructure considerations that merited further evaluation before inclusion.

“This is a big setback, as the market was hoping that inclusion would soothe sentiment and turn the demand-supply situation slightly favourable,” a trader with a state-run bank said.

Traders also closely watched developments in the Middle East as oil prices continued to rise, with the benchmark Brent crude contract touching a more than two-month peak on Tuesday amid prospects of disruptions to Iranian crude exports.

The 10-year benchmark bond yield is unlikely to rise above 6.65% on suspected purchases from the Reserve Bank of India, some traders said.

Investors from the ‘others’ category have bought bonds worth 124 billion rupees ($1.37 billion) on a net basis in the previous three trading sessions, nearly 2.5 times their purchase in the first six days of the year.

The category’s major constituents comprise insurance companies, corporations, pension funds and the RBI.

The RBI has already bought bonds worth 1 trillion rupees in January and is scheduled to buy 500 billion rupees of notes next week.