India bonds rise as RBI moves up debt-buy plan; budget key

MUMBAI: Indian government bonds ended higher on Wednesday, recovering from two days of losses, after the central bank brought forward its debt purchases by a week, signalling to the market it wants to cap the recent climb in yields.

The benchmark 10-year bond yield ended at 6.7026%, after logging its highest closing level in 11 months on Tuesday at 6.7194%.

Bond yields move inversely to prices.

Yields have risen sharply in recent weeks as traders are worried about hefty supply in the upcoming fiscal year. India’s budget, due on Sunday, will unveil New Delhi’s borrowing plan.

The Reserve Bank of India has moved up its open market operations and will purchase 1 trillion rupees ($10.92 billion) in two tranches - on January 29 and February 5 - a week earlier than previously scheduled.

Traders said the move could aid demand at the auction, but would not be a game-changer and any major reaction is likely only after the budget announcement.

New Delhi will sell 320 billion rupees of the 6.48% 2035 bond on Friday.

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“From a bond market standpoint, the net and gross borrowing numbers will be closely eyed to ascertain bond supply at a time when demand-supply imbalances are hurting sentiment,” ICICI Securities Primary Dealership said in a note.

“Given fiscal consolidation is going to be quite modest in our baseline assumption, normally we would expect net borrowing numbers to rise in absolute terms.”

Most analysts have pegged gross borrowing in the range of 16.5–17.5 trillion rupees, which would be a record for any fiscal year.

Rates

India’s overnight index swap rates eased, tracking bond yields, while focus is now on the U.S. Federal Reserve’s monetary policy decision later in the day.

The one-year OIS rate ended at 5.575%, while the two-year closed at 5.73%. The five-year OIS rate settled at 6.1525%.