Indian government bonds remained relatively unchanged on Thursday as investors balanced the Reserve Bank of India’s cautious stance with profit-taking and anticipation of a significant bond auction, amid global and domestic market influences.
Indian government bonds were little changed on Thursday as traders weighed the Reserve Bank of India’s softer-than-expected policy message against profit-taking and the prospect of a large auction on Friday.
The benchmark 6.94% 2036 government bond ended the day at a yield of 6.7666%, slightly lower than 6.7722% on Wednesday. The move came after the yield touched a three-week low in the previous session, extending a rally that has gathered pace since the RBI meeting.
The central bank left the repo rate unchanged on Wednesday but sounded more supportive than many in the market had expected. It trimmed its average inflation forecast for the current financial year to 5.0% from 5.1% and cut its core inflation estimate to 4.3% from 4.7%, reinforcing the view that immediate tightening is less likely. Economists cited by Reuters said the RBI may not raise rates until December or later, while overnight indexed swap rates, a key gauge of policy expectations, also reflected a reduced path for hikes.
Still, the market lacked momentum as investors prepared for New Delhi’s 320 billion rupee bond sale on Friday, which includes the liquid five-year note. Traders also pointed to selling by state-owned banks, which offloaded about $1 billion of bonds on Wednesday, according to market participants. Edelweiss Mutual Fund said in a note that the RBI’s comfort on underlying inflation and its assurance on liquidity should support the short- to medium-term end of the curve.
Broader global cues also limited gains. Oil hovered near $80 a barrel in Asian trade, while the 10-year U.S. Treasury yield rose to 4.63%, tempering enthusiasm for domestic debt. India’s swap market also moved higher, with the one-year, two-year and five-year rates each edging up by about 1 basis point as traders unwound receiving positions.
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