India bonds rise on growing hopes of more RBI buying

MUMBAI: Indian government bonds gained ground early on Wednesday, as traders priced in near-term support from the Reserve Bank of India’s suspected secondary market purchases and the growing likelihood of additional open market buying.

The benchmark 10-year 6.48% 2035 bond yield hovered at 6.6658% as of 10:12 a.m. IST.

It ended Tuesday’s session at 6.6722%. Bond yields move inversely to prices.

Traders are increasingly betting on RBI intervention as the central bank walks a tightrope between managing liquidity and shoring up demand in a market starved of natural buyers.

“The RBI is constantly making a trade off between liquidity and intervention as both the rupee and bonds need central bank support to stay afloat,” a private-bank trader said.

“So, they will have to continue open market purchases.”

The 10-year bond broke a four-session losing streak on Tuesday, leading to speculations that the RBI was actively buying in the secondary market to replenish stock after 200 billion rupees of securities matured in January, traders said. Investors from the “others” category, which includes the RBI, bought bonds worth 35.5 billion rupees ($390 million) on a net basis on Tuesday, per clearing house data.

The RBI is also scheduled to buy bonds worth 500 billion rupees on Thursday, which is the last of the four tranches under its current schedule.

Traders are hoping the RBI will announce

 another round of open market buying.

US Treasury yields have also stayed elevated as investors reacted to turbulence in Japanese bonds and President Donald Trump’s trade clashes with Europe, which continue to add pressure on Indian debt and rupee.