Investor interest boosts India’s long bonds; benchmark flat as supply looms

India’s longer-dated bonds ended higher on Wednesday on continued strong demand from long-term investors, while the benchmark 10-year bond gave up gains and was ultimately little changed ahead of the auction later in the week.The benchmark bond yield of 6.48% for 2035 ended at 6.6777%, after closing at 6.6812% on Tuesday. Yields on bonds with a term of 30 to 40 years fell by 4 to 5 basis points. Bond yields move in the opposite direction to prices.

“Given the steepness of the yield curve, the long end offers reasonable value,” said Abhishek Bisen, head of fixed income at Kotak Mutual Fund.
On Tuesday, Reuters reported that the Reserve Bank of India met with multiple market participants, with the common feedback being to leave unchanged or reduce the share of ultra-long bonds in India’s debt supply.

Ultra-long bonds suffered more than other parts of the yield curve for most of the financial year ending in March as demand from insurers and pension funds, which typically make up the bulk of investors in this segment, lagged supply.

Investors in the so-called “other category” net bought bonds worth 74.84 billion rupees ($823.12 million) on Tuesday, the biggest single-session purchase since June 2023, according to clearinghouse data.

The category includes insurers, pension funds, provident funds, corporates and the RBI. Large-scale purchases from this category are often seen by traders as a sign of the central bank’s purchase of bonds on the secondary market. Meanwhile, New Delhi will sell 320 billion rupees of the 10-year benchmark 2035 bond on Friday, the last sale of the note this fiscal. ⁠Demand and the ultimate return at the auction will be the most important guiding factors for March.PRICES

Indian overnight index swap (OIS) yields remained largely unchanged due to lack of new triggers, while the ultra-short segment witnessed heavy activity. Transactions worth 77 billion Indian rupees ($846.73 million) took place in the two-month OIS, more than double the typically most liquid five-year OIS.

The one-year OIS rate ended at 5.495%, while the two-year OIS rate closed at 5.615%. The five-year OIS rate ended at 6.045%.

($1 = 90.9380 Indian Rupees)