Yields briefly broke above 6.55% three times before retreating amid strong buying interest.
New Delhi’s 300 billion rupee debt sale on Friday, including 5- and 50-year bonds, is seen as a key test of long-term demand, traders said.
Yields on 30-50 year bonds have fallen for three consecutive sessions on speculation that India’s fully accessible route (FAR) government bonds could be added to the Bloomberg Global Aggregate Index, following reports from local media Business Standard.
Traders are now looking for clearer signals on the RBI’s easing path, with a convergence between the one- and two-year OIS rates pointing to expectations of a single rate cut followed by a long pause. The RBI’s rate-setting committee will meet in early December to announce its policy decision. The central bank cut the repo rate by 100 basis points to 5.5% between February and June, and maintained a status quo on the next two policy measures.Benign inflation
Creating room for rate cuts, RBI open market operations (OMOs) as sustainable liquidity eases, and further clarity on the US-India trade deal are seen as key tailwinds for the bond market, Kotak Mahindra Bank said in a note.
The liquidity of India’s sustainable banking system has also fallen to the lowest level in more than five months, driven by the RBI’s aggressive foreign exchange moves.
Net sustainable
Liquidity fell to 3.29 trillion rupees in the fortnight ended October 31, the lowest level since mid-May.
PRICES
Indian overnight index swap (OIS) yields rose as traders saw opportunities to pay on dips.
The one-year OIS finished almost 1 bp higher at 5.46% and the two-year rose 1.25 bp to 5.4625%, and the liquid five-year rose about 3 bp to end at 5.76%.
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