Indian bonds disappear; central bank not a big buyer, state banks lead

Indian government bonds fell in early trade on Wednesday, giving back some of the previous session’s gains after data showed the investor category, which includes the Reserve Bank of India, was not a big buyer, countering market speculation. The benchmark 10-year yield stood at 6.5347% at 10:15 AM IST, down from 6.5155% at the end of Tuesday. The stock fell six basis points on Tuesday, helped by late-session demand that many dealers initially attributed to RBI buying. Bond yields rise when prices fall.

“It is clear that the rally was driven by some large state-owned banks and that is why we are seeing some reversal today, with some moves expected ahead of a monetary policy decision,” said a trader with a primary dealership.
Data showed that the ‘Others’ category – which consists of RBI and other participants – net bought bonds worth just 1.17 billion Indian rupees ($13 million) on Tuesday.

State-owned banks emerged as the biggest buyers of bonds, pushing yields lower, and it is unclear to traders whether this will continue until Friday.

Hopes of a rate cut following the monetary policy decision due on Friday have dimmed as a collapsing rupee and strong growth data make the RBI’s path more difficult. India’s economy expanded at a sharper-than-expected 8.2% in the July-September quarter, but retail inflation slowed to a record low 0.25% in October, with the difference raising doubts about the need for a rate cut, analysts said.

PRICES

Indian overnight index swap (OIS) yields pushed up tracking bond yields at a time when lack of confidence over Friday’s rate cut stings.

The one-year OIS was 5.xx% and the two-year swap was 5.xx%. The five-year OIS rate rose by 2 basis points to 5.82%.

($1 = 90.0537 Indian Rupees).