The yield on the benchmark 10-year bond yield was at 6.2839% as of 10:30 a.m. IST, compared with the previous close of 6.2873%.
The five-year 6.75% 2029 bond was not traded; it closed at 6.0264% in the last session.
Indian government bonds remained stable in early trading following a sell-off triggered by the Reserve Bank of India’s (RBI) announcement of a cash withdrawal plan to manage liquidity. Investors are awaiting Friday’s bond auction, where New Delhi plans to sell bonds worth 360 billion rupees.
Bond yields move inversely to prices.
“The news on VRRR halted a bullish momentum – those who had built positions at the start of the week took a beating,” a trader with a primary dealership said. “We will now wait for Friday’s auction to take a view, and volumes may remain muted till then.”
New Delhi is set to sell bonds worth 360 billion rupees ($4.19 billion) on Friday. The Reserve Bank of India will conduct a seven-day variable rate reverse repo (VRRR) auction worth 1 trillion rupees the same day to tweak banking system liquidity level. The liquidity surplus stood at 2.47 trillion rupees as on June 25. Reuters reported earlier that the RBI may use these rates as and when required, and that it sought market feedback to bring the call rates closer to the repo rate by conducting the VRRR auction. Trading volumes in the 6.33% 2035 bond are also expected to rise as the government plans to sell 300 billion rupees of the paper in Friday’s auction.
RATES
India’s overnight index swap rates inched lower after a sharp rise the previous day. The rates could see some receiving pressure during the day amid growing anticipation of a U.S. rate cut, traders said.
The RBI liquidity withdrawal plan pushed up trading volumes in the short-end OIS rates to a two-week high on Wednesday.
The one-year OIS rate was flat at 5.52%, while the two-year OIS rate was down 1 basis point at 5.49%. The liquid five-year was down 1 basis point at 5.68%.
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