Bond yields rise when prices fall.
States will raise 5 trillion rupees ($55.40 billion) through bond sales between January and March, their largest quarterly borrowings ever, and will auction 301 billion rupees worth of bonds on Tuesday.
Traders said the supply surge has hit a market where investors have been reluctant to build positions as expectations for further rate cuts have faded and liquidity remains tight even after record bond purchases by the central bank.
Foreign banks turned net sellers last week, selling 110 billion rupees worth of bonds, their “biggest weekly sale in almost seven months”, CCIL data showed.
However, the mutual funds still saw value, gobbling up debt worth Rs 93 billion in the first two sessions of January. Meanwhile, the Reserve Bank of India continued its open market purchases as banking system liquidity remained constrained, with the average daily surplus falling to 614.4 billion rupees on January 2 from 726 billion rupees in December to 1.78 trillion rupees in November.The RBI bought bonds worth 500 billion rupees earlier in the day at higher-than-expected interest rates, traders said, pumping money into the system.
“The 6.70% level on the 10-year yield should meet some resistance as the RBI continues its open market buying to ensure short dollar positions do not evaporate liquidity,” said Anil Kumar Bhansali, head of finance at Finrex Treasury Advisors.
PRICES
Indian overnight interest rates rose on Monday as rising supply pressures weighed on bonds.
The one-year OIS rose 1 bp to 5.4850% and the two-year OIS rate ended 1 bp higher at 5.5850%. The five-year OIS rate rose by 1.5 basis points to 5.9750%. ($1 = 90.2520 Indian Rupees)
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