Indian bonds fall as wary traders monitor weekly debt sales

Indian government bonds fell on Thursday ahead of a debt sale that is likely to test a market where appetite has taken a hit despite the central bank’s aggressive debt buying.The yield on ten-year bonds closed at 6.6290%, compared to the previous closing price of 6.6105%. Yields move inversely to bond prices.

The Reserve Bank of India has bought 2 trillion rupees ($22.3 billion) worth of bonds since last month and will buy bonds worth another 1 trillion rupees through Jan. 22.
However, the central bank’s choice to buy less traded bonds in these operations has negatively impacted overall demand, as well as the large upcoming supply from state governments.

New Delhi will sell ‍290 billion rupees worth of 15- and 40-year bonds on Friday.

Traders are also awaiting inflation data, due on Monday, for clues on monetary policy, after India forecast fiscal year GDP growth at 7.4%.

“The RBI is expected to keep liquidity loose and interest rates relatively lower rather than higher,” said Abhishek Bisen, head of fixed income at Kotak Mutual Fund, adding he expects inflation to remain benign and growth to falter in the coming quarters. Traders are also waiting for Indian bonds to be included in the Bloomberg Aggregate Index. The announcement will follow next week.PRICES

Indian overnight rates rose on Thursday, in line with bond yields.

The one-year OIS ended 1.5 bps higher at 5.48%, while the two-year OIS rate rose 2 bps to 5.57%.

The five-year OIS rate also rose by 2 basis points to 5.9375%. ($1 = 89.9710 Indian Rupees)