Bond yields rise when prices fall.
Indian states on Tuesday raised 354.50 billion rupees ($3.95 billion) through bond sales – the largest issuance in more than three months – at expected prices, providing relief to traders worried about a glut of supply due to the auction’s large size.
A deepening liquidity crisis continued to weigh on sentiment, with the banking system running a cash deficit since December 16 and the deficit standing at 715.8 billion rupees as of Monday.
The central bank on Tuesday held a two-day floating rate repo auction worth Rs 2 trillion to support liquidity and received bids worth Rs 1.43 trillion.
To further boost liquidity, the Reserve Bank of India will buy bonds worth another 1.5 trillion rupees in January, in addition to a $10 billion foreign exchange swap. The country has already purchased a record 7 trillion rupees worth of bonds by 2025. The OMOs, aimed at maintaining sustainable liquidity, would help bridge the gap between issuance and demand, thereby ensuring smoother absorption of supply, Axis Mutual Fund said in a note.The focus is also on the possible inclusion of India’s fully accessible route bonds (FAR) in the Bloomberg Global Aggregate Index, and on the fourth quarter government bond calendar.
In addition, trading volumes in government bonds remained tepid, falling to 316.4 billion rupees ($3.53 billion) on Monday, the lowest in more than two months, according to clearing house data.
PRICES
Indian overnight interest rates fell on Tuesday as traders breathed a sigh of relief after the supply of government debt was fully absorbed.
The one-year OIS ended 3 basis points lower at 5.45% and the two-year OIS rate fell about 2 basis points to 5.56%. The five-year OIS rate fell by 1.25 basis points to 5.9225%.
($1 = 89.7450 Indian Rupees)
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