Bond yields move in the opposite direction to prices.
Indian states will issue 398 billion rupees ($4.35 billion) in bonds on Tuesday. While that figure is lower than the originally planned 473 billion rupees, it is higher than what traders expected.
The market is closed on Monday due to a public holiday.
A fall in the rupee and the liquidity of the banking system mean a lot depends on a possible RBI intervention, traders said.
The rupee fell to a low of 91.94 on Friday. The liquidity of the banking system was almost neutral at 101.7 billion rupees. The question is how the RBI will tide over this liquidity crisis and whether it will conduct more OMOs, which is crucial for the market, said Debendra Kumar Dash, senior vice-president of finance at AU Small Finance Bank.Forecasts of higher borrowings next fiscal, combined with firmer global yields, have curbed risk-taking in India’s debt market, a trader at a private bank said.
Investors are now looking forward to further buying on the open market
to keep yields under control. The Reserve Bank of India made no screen bond purchases in the week ended January 16, official data shows
showed.
In addition, market participants are eagerly awaiting the February 1 federal budget announcement, followed by the RBI’s policy outcomes the same week.
PRICES
Indian overnight interest rates rose to their highest level in several months, bogged down by the depreciating rupee, higher term premiums and rising US yields.
The one-year OIS rate rose by 2.5 basis points to 5.5950%, while the two-year swap rate rose by 4.25 basis points to 5.74%. The five-year OIS rate rose by 5.25 basis points to 6.14%.
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