India bonds rise after RBI rate cut; benchmark flat on dry interest

Most Indian government bonds rose in early deals on Monday, while the 10-year notes tread water on dry trading interest, as buyers saw value in other tenors after the Reserve Bank of India announced a rate cut and fresh liquidity infusion plans.

The benchmark 10-year yield hovered at 6.5323% as of 10:40 a.m. IST. It concluded Friday at 6.5166%. The yield on the 6.48% 2035 note was at 6.4965% versus 6.4944% in the previous session.

Bond yields rise when prices fall.


The RBI slashed its key repo rate by 25 basis points on Friday and left the door open for further easing.

Governor Sanjay Malhotra also said the RBI will conduct open market bond purchases worth 1 trillion rupees ($11.10 billion)and a $5 billion foreign exchange swap to pump liquidity into the banking system.

The first of the two 500-billion-rupee OMOs will be conducted on Thursday for papers maturing from four to 25 years.

Buyers have steered away from the 10-year notes, with a bulk of purchases shifting to longer-tenor papers after the RBI announced higher duration OMOs.

Private sector banks led the buying on Friday, having bought a record high of 1.12 billion rupees ($12.43 million). Consequently, yields on the 30-40 year notes have eased 6 to 7 bps since Friday.

"The market looks good; there is buying across maturities after the OMO announcement," said Umesh Tulsyan, managing director at Sovereign Global Markets.

"Depreciating rupee is still a concern, but I am bullish."

RATES

India's overnight index swap (OIS) rates were flat-to-higher on Monday amid a trading lull following the RBI policy.

The one-year OIS was at 5.4250% and the two-year swap was up 1 bp at 5.4825%. The five-year OIS rate was at 5.79%. ($1 = 90.0700 Indian rupees).