India bonds steady as supply overhang caps Treasury-driven gains

MUMBAI: Indian government bonds were rangebound on Monday as positive sentiment from a dip in US Treasury yields was contained by local debt supply worries.

The 10-year benchmark 6.48% 2035 bond yield was at 6.6750% as of 10:55 a.m. IST.

It ended at 6.6799% on Friday. Bond yields move inversely to prices.

A downward trend in US Treasury yields has proven supportive for the domestic market, traders said.

The 10-year US Treasury yield fell to multi-month lows on Friday at 4.05%, helped by data released after Indian market hours that showed a 0.2% rise in the US Consumer Price Index in January, versus an unrevised 0.3% in December.

“Lower Treasury yields are propping up sentiment, but heavy supply through March should keep yields from falling meaningfully,” a trader at a primary dealership said.

The domestic 10-year yield eased about 6 basis points last week, compared to a 15 bps drop in 10-year US Treasury yields, driven by a softer domestic inflation print and New Delhi’s bond switch. Market participants say that more support, particularly via buybacks , is needed to cool yields significantly.

Separately, swelling banking system liquidity may help bridge the gap between demand and supply of debt especially at shorter maturities.

The daily average liquidity surplus for February stood at 2.62 trillion rupees, compared with 660 billion rupees in January.

After the January-March quarter liquidity will ease further, fostering greater transmission of rate cuts in the money market, a trader at an asset management company said.