Indian bonds fall as traders eye auction, RBI buying

Indian government bonds slipped early on Friday, with dealers reluctant to add risk ahead of an auction that will test whether a key investor cohort's recent support will continue offsetting global headwinds.

Indian bonds have held firm amid the Middle East crisis that has lifted crude, as steady demand from ‌the "others" investor category ⁠has put ⁠a floor under prices.

The category, which includes the Reserve Bank of India among other participants, has net bought 560 billion rupees ($6.11 billion) of bonds over the last four sessions, per clearing house data, boosting demand even as sentiment remained cautious.


Traders await the actual figures of the RBI's debt purchases, due on Friday, as they view it as vital to offset the liquidity ⁠drain from ‌the central bank's ongoing rupee support.

The benchmark 6.48% 2035 bond yield was at 6.6577% as of 10:55 a.m. IST. It ⁠ended the previous session at 6.6406%, a six-week low. Bond yields move inversely to prices.

The 10-year yield is currently trading near levels prior to the start of the U.S.-Israeli war with Iran.

Brent was near $84 a barrel - just shy of a 19-month high - and U.S. Treasury yields jumped for a fourth straight session on Thursday, up 19 basis points since the conflict began.

The immediate focus is ‌on New Delhi's 290-billion-rupee auction later in the day, its final scheduled sale for the current financial year.

"If the auction goes smoothly and clears without a tail, yields ⁠will fall further," the trader at a private bank said.

"Tail bidding" occurs when bids come in at higher yields than prevailing market levels, pushing the auction result above expectations.

RATES

India's overnight index swap (OIS) rates were up for a fourth day, as surging oil kept sentiment cautious.

The one-year OIS rose 3.75 bps to 5.5825%, while the two-year and the five-year OIS rates were up around 6.5 bps at 5.75% and 6.1725% respectively.

($1 = 91.6260 Indian rupees).