India bonds search for direction, state debt auction may provide some clues

Indian government bonds were broadly unchanged in early deals on Tuesday as investors awaited the state debt sale and the central bank's debt purchase for further cues.

The benchmark 10-year yield was at 6.5924% as of 10:00 a.m. IST. It ended at 6.5931% on Monday. Bond yields rise when prices fall.

Indian states will aim to raise 178.50 billion rupees ($1.97 billion) later in the day through the sale of bonds with maturities of four- to 30-years.


"We are in for consolidation for a couple of sessions. Unless there is major surprise in state debt cutoffs, we may not see any big moves in the 10-year part of the yield curve," a trader with a primary dealership said.

Separately, the Reserve Bank of India is scheduled to buy bonds worth 500 billion rupees on Thursday, which will include the former benchmark 6.33% 2035 note.

Last week, the central bank purchased a similar quantum of bonds at higher-than-estimated prices, which resulted in a brief price rally.

The RBI's bond buying for this financial year has already hit a record high, with markets anticipating 1-2 trillion rupees of purchases in the last quarter.

Following a rate cut by the RBI on December 5, bond yields have been facing upward pressure on bets that the easing cycle is over, while supply worries have taken centre-stage.

Meanwhile, profit booking by foreigners ahead of the calendar year-end has also been weighing on bonds.

Foreign investors sold the highest quantum of global index-linked bonds in over six months last week.

RATES

India's overnight index swap rates were largely unchanged on Tuesday amid shallow volumes.

The one-year OIS rate and the two-year swap rate were not yet traded. The five-year OIS rate was at 5.88%. ($1 = 90.7710 Indian rupees).