MUMBAI: Indian federal bond yields held steady on Tuesday, with traders waiting on the sidelines to see if the central bank would announce a debt buyback soon.
The 10-year benchmark bond yield was steady at 8.28 percent. The yield had eased 7 basis points on Monday on expectation of more debt buybacks from the Reserve Bank of India.
"Market has already priced in that RBI will announce debt buyback, so from these levels further buying is unlikely," said a trader with a foreign bank.
Mild profit taking is likely during the session, traders said.
After market closed on Monday, the RBI Deputy Governor Subir Gokarn said the central bank was open to more debt buybacks to address the strain on liquidity.
"If we need to address liquidity with further OMOs, we are open to that. We are keeping the OMO option open," Gokarn said on Monday evening.
Traders expect the RBI to support a 130-billion-rupee ($2.62 billion) bond auction announced for Feb. 3 with a debt buyback.
The government will sell 30 billion rupees of 7.83 percent 2018 bond, 70 billion rupees of 8.79 percent 2021 bonds and 30 billion rupees of 8.83 percent 2041 bonds.
The RBI has bought back around 719 billion rupees of bonds via open market operations since late November.
The 10-year yield is unlikely to ease from current levels, as the 2021 bonds would be auctioned on Friday, traders said.
"Traders won't be buying the 2021 bonds because more than 50 percent of the auction stock for Friday is through the 10-year bonds," the trader said.
During the day, the 10-year yield is likely to be in a 8.27-8.32 percent band.
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