MUMBAI: Indian government bonds recouped early losses to end higher on Friday, led by a sharp rally in very long-term notes, as better-than-expected demand at an auction improved investor appetite.
The yield on the benchmark 10-year bond ended at 6.2994%, after closing at 6.3156% on Thursday. Earlier in the day, it hit 6.3395%, its highest in two months. The five-year 6.75% 2029 bond ended at 5.9762% after closing at 5.9636% on Thursday.
Bond yields move inversely to prices.
The Reserve Bank of India sold 2074 maturity paper at a cutoff yield of 7.15%, three basis points lower than market estimates.
Prices of bonds above 30 years jumped after the auction as investors without successful bids scurried to buy in the secondary market.
Bonds fell in early trading as the RBI raised the quantum of its seven-day variable rate reverse repo operation to 2.5 trillion rupees ($29.16 billion), denting sentiment, with the benchmark bond yield briefly breaking a key resistance level.
India bonds flat; traders eye debt supply, RBI liquidity move
Banks parked only 1.52 trillion rupees at the auction, with the interbank call rate staying around the policy repo rate and tri-party rate staying above standing deposit facility rate.
“An increase in the auction size signalled that the authorities prefer the overnight rate to stay within the policy corridor, above the SDF rate and edge closer to the repo rate,” said Radhika Rao, executive director and senior economist at DBS Bank.
Rates
India’s overnight index swap rates saw paying pressure, especially in the shorter end of the curve.
The one-year OIS rate ended at 5.54% and the two-year OIS rate ended at 5.50%. The liquid five-year finished at 5.70%.
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