Bets of RBI buying, lower state debt sale lifts Indian bonds for third day

Indian government bonds gained for ‍a third straight session on Thursday as traders grew more confident of central bank ⁠buying support and ahead of another reduction in state debt auctions next week.

The benchmark 10-year 6.48% 2035 bond yield ended at 6.6352% after closing at 6.6536% on Wednesday. Yields move ‌inversely to prices.

Speculation ‌that the Reserve Bank of India was buying bonds in the secondary market strengthened after data ‌showed investors in the "others" category, which includes insurers, pension funds, corporate firms and the RBI, bought 65.7 billion rupees worth of bonds on a net basis on Tuesday and Wednesday.


Traders also suspect the central bank was active last week. Data ​on RBI purchases for the week ended ​January 16 is due on Friday.

"RBI OMO purchases remain the sole anchor ‌for the ‍bond market, bridging the widening gap between supply and demand. From ‍a liquidity perspective, there is space for additional OMO purchases ‌of 2 trillion rupees in February-March 2026," IDFC First Bank said in a note.

To add to the momentum, expectations that there will be another large cut in weekly borrowing from states favoured bonds with maturities of 15-years and above.

States are scheduled to raise 473 billion rupees ($5.16 billion) through the sale of bonds on Tuesday, after undershooting their borrowing ‍by 256 billion rupees for this week.

With the central bank completing its debt purchase schedule, traders remain hopeful about the ‍release of another ⁠calendar for purchases of ⁠up to 2 trillion rupees over the next two months.

Investors also await federal budget for the next financial year, which will be announced on February 1, with expectations of a record borrowing calendar.

RATES

India's overnight index swap rates were largely unchanged as traders awaited fresh cues on interest rates.

The one-year OIS ended at 5.57%, while the two-year swap rate closed at 5.70%. The five-year OIS rate settled at 6.09%.

($1 = 91.5850 Indian rupees)