Heavy state debt sale to intensify pressure on fragile India bonds
Tuesday has brought significant challenges for Indian government bonds, as states gear up for a substantial bond sale, exacerbating the supply situation. Following the Reserve Bank of India's recent decisions, investor demand remains tepid, leadin...
By Reuters |
ndian government bonds may trade with a downward bias on Tuesday as traders brace for heavy supply from states at a time when demand has already weakened following a spike in yields after the Reserve Bank of India's monetary policy decision.
The benchmark 6.48% 2035 bond yield is likely to move in the 6.74%-6.79% band, according to a private bank trader. The yield ended at 6.7559% on Monday.
"If there is no action (from the RBI), we are set for a test of 6.80% on the 10-year benchmark bond yield as the supply is very heavy," the trader said.
Indian states aim to raise 486.15 billion rupees ($5.36 billion) through bond sales later in the day, about 60 billion rupees more than scheduled and the largest weekly issuance so far this financial year.
Bond markets have been struggling under persistent supply, while purchases across investor segments have eased, forcing the RBI to intervene more aggressively.
The RBI has bought 4.44 trillion rupees of bonds since the beginning of November, pushing total debt purchases for the year to a record 6.83 trillion rupees this financial year. The central bank kept its key repo rate unchanged on Friday, as widely anticipated, but traders had been looking for some measures to ease liquidity, which did not come. Banks have been pushing the RBI to tweak liquidity regulations as deposits lagged credit growth amid rising bond yields, squeezing their ability to lend.
The RBI has cut rates by 125 bps since February 2025, yet the 10-year government bond yield remains near levels seen last year.
RATES
India's overnight index swap rates are expected to move in a narrow range observing the moves in government bond yields. The one-year OIS rate and the two-year rate ended at 5.5175% and 5.69% respectively. The five-year OIS rate ended at 6.18% on Monday. KEY INDICATORS:
Benchmark Brent crude futures were little changed at $69.05 per barrel after rising 1.5% in the previous session
Two-year U.S. Treasury yield was at 3.4789%, 10-year U.S. Treasury yield at 4.1920%
Indian states to raise 486.15 billion rupees via sale of bonds
The benchmark 6.48% 2035 bond yield is likely to move in the 6.74%-6.79% band, according to a private bank trader. The yield ended at 6.7559% on Monday.
"If there is no action (from the RBI), we are set for a test of 6.80% on the 10-year benchmark bond yield as the supply is very heavy," the trader said.
Indian states aim to raise 486.15 billion rupees ($5.36 billion) through bond sales later in the day, about 60 billion rupees more than scheduled and the largest weekly issuance so far this financial year.
Bond markets have been struggling under persistent supply, while purchases across investor segments have eased, forcing the RBI to intervene more aggressively.
The RBI has bought 4.44 trillion rupees of bonds since the beginning of November, pushing total debt purchases for the year to a record 6.83 trillion rupees this financial year. The central bank kept its key repo rate unchanged on Friday, as widely anticipated, but traders had been looking for some measures to ease liquidity, which did not come. Banks have been pushing the RBI to tweak liquidity regulations as deposits lagged credit growth amid rising bond yields, squeezing their ability to lend.
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The RBI has cut rates by 125 bps since February 2025, yet the 10-year government bond yield remains near levels seen last year.
RATES
India's overnight index swap rates are expected to move in a narrow range observing the moves in government bond yields. The one-year OIS rate and the two-year rate ended at 5.5175% and 5.69% respectively. The five-year OIS rate ended at 6.18% on Monday. KEY INDICATORS:
Benchmark Brent crude futures were little changed at $69.05 per barrel after rising 1.5% in the previous session
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Two-year U.S. Treasury yield was at 3.4789%, 10-year U.S. Treasury yield at 4.1920%
Indian states to raise 486.15 billion rupees via sale of bonds
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