India bonds pare gains as supply woes blunt impact of RBI liquidity support

MUMBAI: Indian government bonds gave up opening gains on Tuesday, as a chunky state debt supply due later in the day eclipsed the impact of the central bank’s plan to inject liquidity into the banking system through mid-February.

The benchmark 10-year 6.48% 2035 bond yield was at 6.6661% at 10:00 a.m. IST, up from the day’s low of 6.6443%.

It ended at 6.6635% on Friday. Indian financial markets was closed on Monday due to a local holiday. Bond yields move inversely to prices.

The Reserve Bank of India, after market hours on Friday, said that it will inject more than $23 billion of liquidity into the banking system, spurring wagers that the support could extend into March.

Still, traders scaled back buying on concerns that the market may struggle to digest a chunky state bond issuance.

Indian states are set to issue 398 billion rupees of bonds later in the day.

While that figure is below the 473 billion rupees originally scheduled, it is higher than what traders had expected.

States have announced a record borrowing of 5 trillion rupees for the January-March period.

“The RBI’s cash injections were expected, and are only a temporary solution to the supply-demand mismatch,” a private-bank trader said.

“A lot now hinges on what the Budget signals on the scale of debt supply, which will shape the trajectory of the government’s cost of borrowing.”

India’s federal budget is due on February 1 and analysts expect the government to announce a record gross borrowing for the next fiscal year, ranging between 16 trillion rupees to 17.5 trillion rupees.