Bond yields rise when prices fall.
Traders are cautiously bracing for Friday’s auction of 320 billion rupees ($3.56 billion) of the 10-year benchmark bond.
The market remains in limbo, with investors waiting for a catalyst to revive demand as the rate easing cycle appears largely over and the Reserve Bank of India’s heavy secondary market buying has failed to improve sentiment.
Traders said the RBI’s choice of securities for open market operations has hurt volumes as these papers have seen limited trading interest.
The banking system’s liquidity also remained deficient or near neutral, leaving less cash available to support bond purchases. Liquidity improved slightly on Wednesday after fifteen consecutive days of shortages. The system showed a surplus of 173 billion rupees ($1.92 billion) on December 31, after running a deficit of 573 billion rupees on average from December 16 to 30.“Liquidity is not improving significantly, most policy actions have been implemented and there is a large surplus of supply,” said Debendra Kumar Dash, senior vice president of the Ministry of Finance at AU Small Finance Bank.
“None of this is encouraging for traders in the market. There is no relief in sight.”
States are also expected to announce their borrowing calendar for January and March by the end of the week, with issuance of as much as Rs 5 trillion, a record quarterly amount.
PRICES
India’s overnight index swap rates were little changed on Thursday as traders waited for strong directional cues.
The one-year OIS rate was 5.45% and the two-year OIS rate ended at 5.5550%. The five-year OIS interest rate was 5.9250%. ($1 = 89.9350 Indian Rupees)
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