India bond traders eye RBI OMO, fresh debt supply before budget test

MUMBAI: Indian government bonds are set to open nearly flat on Thursday after staging a mini recovery a day earlier, as market focus remains on the central bank’s bond purchase later in the day and New Delhi’s debt sale on Friday.

The benchmark 10-year 6.48% 2035 bond yield is likely to be in the 6.68%-6.72% range, according to a private bank trader.

The yield closed at 6.7026% on Wednesday. Bond yields move inversely to prices. “For today, we are not expecting any major move on either side. Many traders are already positioned for the budget, so unless there is a shock or surprise in the open market operation, we will see a peaceful day,” the trader said.

The Reserve Bank of India will buy bonds worth 500 billion rupees ($5.43 billion) on Thursday, followed by a similar purchase on February 5.

The RBI moved up these operations by a week after the 10-year bond yield hit an 11-month high earlier this week.

The central bank has bought 3 trillion rupees of bonds in the December-January period, bringing its total debt purchases for the fiscal year to a record 5.7 trillion rupees.

Additionally, New Delhi will sell the benchmark 6.48% 2035 bond on Friday in a bid to raise 320 billion rupees, which will continue to put the note under strain.

Overall, bond yields have risen over the last few weeks as investors worry that an estimated record 30 trillion rupees of central and state government bond supply next fiscal could complicate the RBI’s task of managing a weakening rupee and rising rates.