Indian bond yields dip as traders see buying window

Indian government bond yields dropped in early deals on Wednesday, despite caution after India attacked Pakistan and Pakistan-administered Kashmir, with traders pointing to likely bargain buying by investors who lightened positions over the last few days.

The benchmark 10-year yield was at 6.3416% as of 10:50 a.m. IST, compared with its previous close of 6.3508%.

"Traders had lighter books, because they had previously sold on geopolitical tensions, and yesterday (Tuesday) we saw a good participation in the RBI's open market operation," said Umesh Tulsyan, managing director at Sovereign Global Markets.


Traders are likely building their positions back following India's strikes on Pakistan, according to Tulsyan. "We are seeing strong buying in the market and expect the momentum to continue," he said.

New Delhi said it conducted a military operation in Pakistan across nine locations in the south Asian neighbour's territory as well as Pakistan-administered Kashmir.

Investors are closely watching the news for any response from Pakistan for deciding on further trading action.

Foreign banks turned net bond sellers on Monday, ending a three-week buying streak. They sold bonds worth 22.7 billion rupees on a net basis on Tuesday. Primary dealers also emerged as sellers, paring positions worth 33 billion rupees.

Meanwhile, the Reserve Bank of India is set to auction treasury bills worth 190 billion rupees ($2.25 billion) later in the day.

Traders will also watch for the U.S. Federal Reserve's policy decision due later on Wednesday, where the Fed is widely expected to keep the interest rates unchanged.

RATES

India's overnight index swap rates fell on receiving bias, tracking moves in the secondary government bond market.

The one-year OIS rate fell 3 basis points to 5.60%, while the two-year OIS rate dropped 2 basis points to 5.47%, and the most liquid five-year OIS rate was down 4 basis points at 5.58%.

($1 = 84.4990 Indian rupees)