New Delhi sold 320 billion rupees ($3.56 billion) worth of bonds at higher-than-expected interest rates, exposing underlying demand weakness and breaking the short-lived bull run that built after two sessions of sharp gains this week. The market was closed on Thursday due to a holiday.
While market sentiment has improved, it still remains fragile unless the supply-demand balance becomes structurally favorable, a trader at a state-owned bank said.
“The governor had clarified that the OMOs and swaps should be seen as a measure to boost liquidity, rather than steps to manage the currency or interest rates,” DBS Bank analysts said.
On Wednesday, 10-year bond yields posted their biggest single-session decline in seven months as the Reserve Bank of India said it will inject about 2.90 trillion rupees into the banking system in the coming month.
This includes bond purchases of 500 billion rupees next week and 1.5 trillion rupees in January, along with a three-year buy/sell swap of $10 billion over three years between dollars and rupees. By 2025, the RBI has purchased bonds worth Rs 6.5 trillion, a record high.Bond market participants argue that the big infusion opens the door to continued increases in government bond prices and ensures that the banking system’s liquidity remains at optimal levels.
PRICES
Overnight index swap yields in India ended higher as mild yields amid low volumes pushed yields higher.
The one-year OIS rate ended at 5.47%, while the two-year OIS rate ended at 5.56%. The five-year OIS interest rate was 5.93%.
($1 = 89.8990 Indian Rupees)
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