India bonds trade flat before debt sale, auction calendar

Indian government bonds traded within a narrow range in early deals on Thursday as market participants await debt supply followed by the borrowing calendar for the fiscal second half, expected at the end of the week.

The yield on the 10-year benchmark note was at 6.4855% as of 10:05 a.m. IST, after closing at 6.4908% on Wednesday. The benchmark bond yield has stayed in a thin band over the last two weeks.

"All eyes are on the supply calendar, especially on the quantum of longer duration supply, and till then we could see some nervousness, which could be also visible in tomorrow's debt auction," trader with a primary dealership said.


New Delhi will issue 15-year and 40-year bonds worth 160 billion Indian rupees ($1.81 billion) each on Friday.

The government is scheduled to borrow 14.82 trillion rupees through sale of bonds this fiscal year, of which 6.82 trillion rupees will be sold between October-March.

The borrowing calendar would be released in the next three to four days and will be a key trigger for the market as investors worry the supply of longer-tenor debt may exceed demand.

Traders also await states' quarterly borrowing calendar, slated for release at the end of the month. A rise in supply could also hurt demand for central government bonds.

The calendar will be followed by the Reserve Bank of India's monetary policy decision on October 1, wherein Citi, State Bank of India, Capital Economics and Barclays expect a rate cut.

RATES

India's overnight index swaps (OIS) hardly moved amid low volumes, with traders eyeing cues on interest rates.

The one-year OIS rate was at 5.4450%, while the two-year OIS rate settled at 5.4350%.

The liquid five-year OIS rate was at 5.72%. ($1 = 88.6200 Indian rupees).