Indian bond yields seen slightly lower ahead of RBI’s debt purchase

Indian government bond yields are expected to edge lower in early deals on Thursday ahead of the central bank’s debt purchase, while traders will also closely watch U.S. Treasury yields for further cues.

The yield on the 6.79% government bond maturing in 2034 will likely trade between 6.25%-6.32%, a trader at a primary dealership said. It closed at 6.2855% in the previous session.

The yield on the new 10-year benchmark 6.33% bond maturing in 2035 is also expected to open lower, compared with its previous close of 6.2398%.
The Reserve Bank of India is set to purchase bonds worth 250 billion rupees ($2.93 billion) later in the day.

Traders said most of the buying already happened this week, and the drop will likely be capped because of rising U.S. Treasury yields.

Private banks emerged as the largest buyers of Indian government bonds on Tuesday. These lenders net bought bonds worth 92.6 billion rupees ($1.08 billion) – the highest single-day purchase in eight years and six months. “If the yields break 6.25%, then we can see it drop to 6.20%, and the upper level will not be beyond 6.35%,” a trader with a private bank said. “If it holds upside without much fall in early trade, then it should be a good day,” the trader said.

RATES

India’s overnight index swap (OIS) rates are seen higher, tracking U.S. Treasury yields.

The one-year OIS rate was at 5.62%, while the two-year OIS rate was at 5.50%, and the most liquid five-year OIS rate was at 5.65%.

KEY INDICATORS: ** Brent crude futures LCOc1 down 2.1% at $64.70 per barrel, after dropping 0.81% in previous session ** Ten-year U.S. Treasury yield US10YT=RR at 4.5343%; two-year yield US2YT=RR at 4.0487% ** The RBI to conduct one-day variable rate repo auction for 250 billion rupees ($1 = 85.3430 Indian rupees).