Indian bonds slip on lack of buying interest

Indian government bonds dipped after a two-day holiday break, as a dearth of strong buying catalysts weighed on sentiment, leading to a supply-demand mismatch.

The yield on the benchmark 10-year note was at 6.5306% as of 10:40 a.m. IST. It had closed at 6.5040% on Monday. The Indian debt market was shut on Tuesday and Wednesday due to local holidays.

Bond yields move inversely to prices.


The 10-year yield has stayed above 6.50% all month, except on October 15, ahead of the release of the central bank's policy meeting minutes.

The 10-year yield's inability to close below the crucial level due to heavy profit booking from state-run banks has dampened expectations that yields will decline significantly without a strong catalyst, traders said.

"The break of 6.50% now seems to be a distant probability, as market has gone back into unfavourable demand-supply dynamics," trader with a private bank said.

A range-bound move in the 10-year U.S. treasury yield also played a part in confining India bonds to a narrow band.

The 10-year U.S. yield was at 3.9549% in Asian hours, steady after easing nearly 5 bps in the previous three sessions.

With U.S. Treasury yields sliding and Indian benchmark bond yields inching up, gap between the two has jumped to 257.5 basis points - levels last seen in 2024.

Traders will also watch for the Reserve Bank of India's sale of treasury bills worth 190 billion rupees ($2.16 billion), due later in the day.

Also in focus is the RBI's overnight variable rate repo auction, worth 500 billion rupees, as festive outflows likely squeezed the banking system liquidity surplus, traders said.

RATES

India's overnight index swap (OIS) rates jumped as sentiment soured amid lack of buying interest.

The one-year OIS rate was up 2.75 bps at 5.45%, while the two-year OIS rate was also up 3.5 bps at 5.3950%.

The five-year swap rate rose 3.75 bps to 5.6425%. ($1 = 87.8950 Indian rupees)