Indian bonds are recovering after the market absorbed the large government supply

Indian government bonds recovered on Tuesday, breaking a two-session losing streak, as the market absorbed the large supply of government debt without any major rise in yields, boosting sentiment.The benchmark 10-year interest rate stood at 6.6137%, while the previous closing rate was 6.6331%.

Bond yields move in the opposite direction to prices.
Indian states successfully raised 301 billion rupees ($3.34 billion) through bond sales earlier in the day. While the notes sold at yields slightly higher than previous auction limits, investors sought relief from the fact that the auction was fully subscribed to a market with faltering demand.

Traders were concerned about the success of the auction, following last week’s sharp price drop after states announced a record January-March borrowing plan.

Ten-year Indian bond yields rose 5 basis points in two sessions after the announcement. State-owned banks emerged as buyers during this period, purchasing a net of Rs 125 billion in three sessions.

These lenders have been buying bonds as the Reserve Bank of India continues its purchases in the open market. The RBI on Monday bought 500 billion rupees worth of bonds and will buy another 1 trillion rupees worth of bonds in January. The central bank will also carry out a $10 billion foreign exchange swap next Tuesday. With the supply of government debt shrinking, market attention is likely to turn to the central government’s budget announcement in February, traders said.“Traders are now cautiously awaiting the budget as the gross credit figure is exceeding expectations due to maturities this year,” said Alok Sharma, head of finance at ICBC, Mumbai.

PRICES

Indian yields on longer-term overnight indexes fell and reversed course after three sessions.

The one-year OIS fell slowly to 5.4775%, while the two-year OIS rate fell 1 bp to 5.5750%. The five-year OIS rate fell by 2.25 basis points to 5.9525%.

($1 = 90.1710 Indian Rupees)