Source: The Economic Times
On Thursday morning, Indian bond prices were largely stable, with investors taking a breather following the prior sell-off. The market was focused on the events planned for Friday, a large bond auction from the government and a liquidity operation from the Reserve Bank of India (RBI).
As of 10:30 a.m. IST, the yield on the benchmark 10-year government bond was 6.2839%, slightly lower than the previous session’s yield of 6.2873%. The five-year bond, set to mature in 2029, was not traded early in trade. It last closed at 6.03% on Wednesday. In the bond market,
bond prices and yields move opposite of each other.
The sudden calming of the market occurred following a period of selling earlier in the week, following the RBI’s announcement of a liquidity tightening plan.
“The news on VRRR halted a bullish momentum – those who had built positions at the start of the week took a beating,” a trader with a primary dealership said. “We will now wait for Friday’s auction to take a view, and volumes may remain muted till then.”
RBI to Absorb Excess Liquidity
The RBI will host a ₹1 trillion, seven-day Variable Rate Reverse Repo (VRRR) auction on Friday. This is a tool for removing excess money from the banking system. The objective of the exercise is to get short-term borrowing rates in the banking system nearer to the repo rate the RBI has set as the main policy rate.
On June 25, liquidity in the banking system was in surplus to the tune of approximately ₹2.47 trillion. As noted in earlier information, the RBI is likely to utilize VRRR auctions more proactively, based on the market conditions and feedback from traders.
Government to Auction New Bonds
The Indian government is scheduled to sell bonds worth 360 billion rupees ($4.19 billion) on Friday. Trading activity in the 6.33% 2035 bond is likely to increase, with the government set to auction ₹300 billion worth of the paper on Friday. Interest Rate Swaps Edge Lower
In the interest rate swap (OIS) market:
- The 1-year rate remained flat at 5.52%
- The 2-year rate dropped slightly to 5.49%
- The 5-year rate fell to 5.68%
These small adjustments point to caution from traders waiting to see what the RBI’s liquidity action and bond auction will do to the market.
Conclusion: Indian bonds were stable on Thursday as traders seemed to take a wait-and-see approach. The RBI had come in to absorb liquidity, and the government was preparing for a large bond sale.
