MUMBAI: Indian government bond yields ended largely flat on Wednesday, extending a recent trend of muted moves, as traders looked for fresh cues ahead of a debt auction later this week.
The yield on the benchmark 10-year bond ended at 6.3117%, after closing at 6.3069% on Tuesday.
New Delhi will sell bonds worth 360 billion rupees ($4.16 billion) on Friday, including 300 billion rupees of the benchmark, taking the outstanding issuance to 1.2 trillion rupees.
Traders are also gauging the developments of expectations of yet another interest rate cut by the Reserve Bank of India, as early as August.
“The RBI monetary policy committee’s rate review in early August is expected to be the next catalyst, with consensus split between a rate cut or a pause, at this juncture,” said Radhika Rao, executive director and senior economist at DBS Bank.
A plunge in India’s retail inflation rate to 2.10% in June, the slowest pace in more than six years, has led to increased talk of an interest rate cut on August 6.
Indian bond yields expected to show a slight decline
An estimated drop in inflation to a record low in July is further pushing up rate cut calls, with ICICI Bank recommending August would be an appropriate time for a 25-basis-point cut, given the muted inflation scenario.
Investors will also watch out for the Federal Reserve’s policy decision on July 30 for signals on the domestic interest rate trajectory.
Most investors expect the Fed to keep rates unchanged, while any commentary from the central bank’s chief would be key.
Rates
India’s overnight index swap rates (OIS) remained largely unchanged, barring the ultra-short end swaps that witnessed some paying.
The one-year OIS rate ended at 5.485% and the two-year OIS rate ended at 5.455%. The liquid five-year OIS rate finished at 5.6675%.
