India bonds to remain rangebound ahead of debt supply

Indian government bonds are likely to open flat on Friday, as traders await New Delhi's debt sale, which could prompt some short covering later in the session.

The yield on the benchmark 10-year bond is likely to move between 6.30% and 6.33%, a trader at a private bank said, after closing at 6.3276% on Thursday.

Bond yields move inversely to prices.


"There could be some selloff before the debt supply, but the bonds will largely remain rangebound," a trader at a private bank said.

"We expect the auction to sail through as traders will build positions before the policy, so there will be a strong demand for the 10-year paper and we could see a short rally post-auction."

New Delhi will sell bonds worth 360 billion rupees ($4.16 billion) later in the day, including the 10-year benchmark bond worth 300 billion rupees, which will take the outstanding issuance of this note to 1.20 trillion rupees.

Traders expect strong demand at the debt sale but are likely to trade cautiously amid rising oil prices and tightening liquidity in the banking system, they said.

The Reserve Bank of India announced after market hours on Thursday that it will conduct a seven-day variable rate reverse repo during the day, to drain out 1.25 trillion rupees from the banking system, against a maturing amount of 2 trillion rupees.

RATES

India's overnight index swap rates are expected to move in a tight range as traders await the auction to gauge demand ahead of the central bank's policy decision.

The one-year OIS rate ended at 5.4975% and the two-year OIS rate ended at 5.4575%. The liquid five-year OIS rate settled at 5.6875%.

KEY INDICATORS:

* Benchmark Brent crude futures were 0.56% higher at $69.57 per barrel after easing 0.1% in the previous session

** Ten-year U.S. Treasury yield at 4.3977%; two-year yield at 3.9184% ($1 = 86.4410 Indian rupees) (Reporting by Khushi Malhotra; Editing by Sherry Jacob-Phillips)