India bonds dip tracking US peers; government debt plan in focus

Indian government bonds fell in early deals on Monday, mirroring a drop in U.S. Treasuries, with traders keeping an eye on the central and state governments' borrowing plan for the second-half of the fiscal year.

The yield on the 10-year benchmark note was at 6.5028% as of 10:30 a.m. IST. It closed at 6.4885% on Friday.

"Higher U.S. yields and depreciating rupee may put pressure on bonds. Since its quarter-end, the volumes will also likely be muted," a private-bank trader said.


The 10-year U.S. Treasury yield has risen 12 basis points in the last four sessions.

The rupee also edged lower in early trading, as a rally in the U.S. dollar after the Federal Reserve's policy decision and soft risk sentiment dented demand for the local currency.

The government's borrowing calendar's release, expected end of this month, will be a key trigger for the market as participants eye a change in longer-duration supply.

Indian lenders have urged the central bank to cut the share of ultra-long federal bonds in the supply schedule and reduce weekly auction sizes, which could stretch the borrowing calendar until next March.

With supply overshooting demand in the long-end, the yields on the 30-40 year bond yields have risen 20-26 basis points since the start of the Reserve Bank of India's rate easing cycle in February.

Traders will also cautiously watch for the states' quarterly borrowing calendar, scheduled for release around the same period, as the RBI has asked states to spread their borrowing across tenures rather than focusing on long-term bonds.

RATES

India's overnight index swaps are expected to tiptoe in a narrow range as traders await the government's borrowing plan.

The one-year OIS rate was at 5.45%, and the two-year OIS rate was flat at 5.42%.

The liquid five-year OIS rate was steady at 5.71%.