India 10-year yield sinks to 6-week low on likely RBI backstop

MUMBAI: India’s 10-year government bond yield slid to its lowest level in about six weeks on Thursday, with traders citing a possible central bank intervention in the debt and FX markets that eased oil-driven jitters from the Middle East conflict.

The benchmark 6.48% 2035 bond yield ended at 6.6406%, its lowest since January 22. It concluded Wednesday’s trade at 6.6732%.

The rupee rose 0.6% on Thursday, logging its biggest one-day gain in a month after the central bank likely stepped in aggressively to shore up the currency.

Clearing house data showed an investor category comprising insurers, pension funds, corporates and the Reserve Bank of India net bought a record 202 billion rupees ($2.19 billion) of bonds on Wednesday.

Traders said the RBI is likely to keep intervening as geopolitical risks persist. The U.S.-Israeli war with Iran entered its sixth day on Thursday, with Israel launching a large wave of strikes on Tehran. The benchmark Brent crude jumped more than 2.4% on Thursday.

The conflict is expected to weigh more on India’s economic growth than its inflation, which will encourage the RBI to keep interest rates low, three sources familiar with policymakers’ thinking and analysts told Reuters.

Separately, New Delhi will raise 290 billion rupees through the sale of 15-year and 40-year bonds on Friday, its final scheduled debt auction of the financial year.

Dealers said focus will be on how comfortably the market absorbs the upcoming auction and whether RBI is actually buying to support the market.

“As we are at fag end of bond auction, bonds will find support and investors have been on buying side,” said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank.

Rates

India’s overnight index swap (OIS) rates inched up tracking higher oil prices.

The one-year OIS surged 1.25 bps to 5.55%, while the two-year was up 1.5 bps at 5.69%.

The five-year OIS rate rose slightly to end at 6.0950%.