India bonds consolidate, demand for mega state debt sale eyed

Indian government bonds were largely unchanged in early deals on Tuesday, as market participants await yet another large debt supply from states, with the focus on any action to reduce supply pressure.

The benchmark 6.48% 2035 bond yield was at 6.6671% as of 10:45 a.m. ‌IST, after ⁠ending ⁠at 6.6642% on Monday. The yield has declined by about 10 basis points over the last five sessions.

"We do not have any triggers for today and tomorrow, unless there is any shock at the state debt auction, so the 10-year yield should be in 6.65%-6.68% range," the trader said.


Indian states are set to raise 379 billion rupees ($4.18 billion) ⁠through bond ‌sales later in the day, lower than the scheduled 390 billion rupees. This would mark the fourth consecutive week ⁠that states are borrowing more than 375 billion rupees.

State bond yields have risen over the last few weeks on supply pressure as they are expected to borrow a record quantum this year and even more in the next financial year.

Bond market investors have said that a sustained easing in yields may require support from the Reserve Bank of India or the government ‌via buybacks or open market operations.

Meanwhile, U.S. Treasury yields extended their fall on Tuesday, with the 10-year yield falling to 4.03% from 4.0560% ⁠in Asian hours, after retail inflation slowed in January and raised bets for rate cuts later this year.

RATES

India's overnight index swap (OIS) rates were barely changed in a low-volume trading session,

The one-year OIS rate was not yet traded after ending at 5.49%, while the two-year rate was unchanged at 5.5950%. The five-year OIS rate was a tad higher at 6.03%, after shedding 4 bps on Monday.

($1 = 90.7580 Indian rupees)