India bonds rise as likely RBI buying, lighter state borrowing aid sentiment

Indian bonds firmed on Monday, as likely central bank purchases last week and a lighter-than-expected state borrowing plan improved sentiment ahead of a monetary policy decision.

The benchmark 6.48% 2035 bond yield slipped to 7.1149% at 11:00 a.m. IST against 7.1329% on Thursday, its highest level ‌in nearly ⁠two years. ⁠The yield eased after rising for 12 straight sessions.

Bond yields move inverselyto prices.


Clearing house data showed a category of investors that includes the Reserve Bank of India and other long-term investors net bought 96 billion rupees ($1.03 billion) of bonds in the secondary market on Thursday, in purchases possibly led by the central bank, traders said.

States said they will ⁠sell about ‌2.54 trillion rupees of bonds in April-June, below market expectations of 3 trillion rupees.

"Likely central bank support last week ⁠and a lighter state borrowing calendar improved sentiment and triggered some value buying," a private bank trader said.

The price rally may struggle to hold, traders said, as the worsening Middle East conflict clouds India's macroeconomic outlook and will keep investors guarded before the RBI's rate decision on Wednesday.

U.S. President Donald Trump has vowed to rain "hell" on Tehran if it did not make a deal ‌and reopen the Strait of Hormuz by his Tuesday deadline.

Brent crude futures were last up 0.63% at $109.72 a barrel.

The RBI is expected to leave ⁠rates unchanged and retain its neutral stance at the meeting, MUFG Bank said, adding that markets will be watching for remarks on the policy and liquidity outlook.

RATES

India's overnight index swap (OIS) rates dipped as an improvement in sentiment prompted receiving interest.

The one-year OIS rate was down 10.25 bps at 6.27%, while the two-year rate fell 8.75 bps to 6.4525%. The five-year rate eased 7.5 bps to 6.7650%. ($1 = 92.8950 Indian rupees)