Why Indian government bonds are seeing dip in value today
What's the story
Indian government bonds opened slightly lower today, following a selloff in US Treasuries. The decline comes despite expectations of possible support from the Reserve Bank of India (RBI). Investors are now looking for more information on the RBI's bond-buying plans. At the same time, overnight index swap rates have risen slightly, mirroring the trend in US Treasury yields.
Anticipation
Rise in bond yields
The yield on India's benchmark 10-year note stood at 6.5236% as of 10:10am IST today, up from Friday's close of 6.5142%. This rise comes as investors await clarity on whether the RBI's suspected secondary market bond purchases are a yield signal or just replacement demand. The uncertainty is further compounded by the recent increase in US Treasury yields amid debt supply concerns.
Market dynamics
'Others' category bought ₹205B worth bonds last week
Investors from the "others" category, including RBI, insurers, pension funds, and corporates, bought bonds worth ₹205 billion ($2.31 billion) last week. It was the segment's biggest weekly purchase in nearly five years. The RBI is believed to have stepped up its purchases last week as it held around ₹200-250 billion of 5.15% 2025 government bond that matured on Friday.
Market pressure
Traders urge RBI to buy government debt
Traders have requested the RBI to buy government debt and change auction rules to ease pressure on the bond market. This was discussed at a meeting with the central bank last week. The call for support comes as the traders await October retail inflation data due on Wednesday, which is tipped to have slowed more than a full percentage point to 0.48% from 1.54% in September.