Indian government bonds gained on Thursday, as heavy purchases over the last two sessions, which traders believe were by the central bank, lifted sentiment and raised hopes that the Reserve Bank of India will conduct open market bond purchases soon.
The benchmark 10-year yield ended at 6.5150%, after closing at 6.5279% on Tuesday, having earlier touched 6.4984%, its lowest since Oct. 23. Bond yields move inversely to prices.
Markets were closed on Wednesday for a local holiday.
Investors from the "others" category which includes companies, insurers, the central bank and pension funds bought nearly 50 billion rupees ($568.8 million) of bonds on Tuesday, after 40 billion rupees of purchases on Monday, clearing house data showed.
Traders are speculating that the bulk of the purchases are from the Reserve Bank of India, coming after it cancelled an auction of 110 billion rupees last Friday.
At a meeting with the central bank on Tuesday, traders urged the RBI to step in to buy government debt and tweak the auction rules to ease pressure on the bond market, Reuters reported, citing three sources.
"If FX intervention continues, which reduces durable liquidity, then the RBI can potentially do OMO purchases of 1.5-2 trillion rupees to ensure reserve money growth does not weaken significantly. The earliest the RBI can start is in December, during the period of advance tax outflows," analysts at Deutsche Bank said in a note.
The focus for market participants will remain on fresh debt supply on Friday, wherein New Delhi will sell 320 billion rupees of the new 10-year 6.48% 2035 bond in its second auction. This note will gradually replace the existing benchmark paper.
RATES
India's overnight index swap rates ended higher, tracking a spike in U.S. Treasury yields.
The one-year OIS rate ended at 5.49% and the two-year rate ended at 5.46%. The five-year swap rate settled at 5.71%. ($1 = 88.6550 Indian rupees)
The benchmark 10-year yield ended at 6.5150%, after closing at 6.5279% on Tuesday, having earlier touched 6.4984%, its lowest since Oct. 23. Bond yields move inversely to prices.
Markets were closed on Wednesday for a local holiday.
Investors from the "others" category which includes companies, insurers, the central bank and pension funds bought nearly 50 billion rupees ($568.8 million) of bonds on Tuesday, after 40 billion rupees of purchases on Monday, clearing house data showed.
Traders are speculating that the bulk of the purchases are from the Reserve Bank of India, coming after it cancelled an auction of 110 billion rupees last Friday.
At a meeting with the central bank on Tuesday, traders urged the RBI to step in to buy government debt and tweak the auction rules to ease pressure on the bond market, Reuters reported, citing three sources.
"If FX intervention continues, which reduces durable liquidity, then the RBI can potentially do OMO purchases of 1.5-2 trillion rupees to ensure reserve money growth does not weaken significantly. The earliest the RBI can start is in December, during the period of advance tax outflows," analysts at Deutsche Bank said in a note.
The focus for market participants will remain on fresh debt supply on Friday, wherein New Delhi will sell 320 billion rupees of the new 10-year 6.48% 2035 bond in its second auction. This note will gradually replace the existing benchmark paper.
RATES
India's overnight index swap rates ended higher, tracking a spike in U.S. Treasury yields.
The one-year OIS rate ended at 5.49% and the two-year rate ended at 5.46%. The five-year swap rate settled at 5.71%. ($1 = 88.6550 Indian rupees)
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