India Bond Yields Expected to Hold Steady Ahead of Key Events

Indian government bonds are likely to trade largely unchanged in early transactions on Tuesday, as investors adopt a cautious approach ahead of significant market-moving events scheduled later in the week. These events include the Reserve Bank of India's (RBI) bond purchase and the release of the Federal Reserve’s policy meeting minutes.

Benchmark Yield and Market Expectations

The benchmark 10-year bond yield is expected to fluctuate within the 6.68%-6.70% range, according to a trader from a private bank. This is in comparison to its previous close of 6.6930%. Market participants anticipate limited movement in bond yields due to a lack of immediate catalysts.

"We should see sideway moves today, as immediately there is nothing that could move the markets on either side," the trader remarked. "There should be some consolidation in the 6.68%-6.70% zone."

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Additionally, Indian debt markets will remain closed on Wednesday due to a local holiday, further reducing near-term trading activity.

RBI’s Bond Purchase and Liquidity Measures

On Thursday, the RBI is set to conduct a bond purchase worth 400 billion rupees ($4.60 billion), marking the final phase of its large-scale liquidity infusion initiative, which was introduced in late January.

For this particular auction, the central bank has included the benchmark 6.79% 2034 security. The RBI had previously acquired around 50 billion rupees of this paper in its first bond-buying round in January but did not feature it in the second auction.

So far, the RBI has acquired a total of 600 billion rupees through bond auctions and an additional 388.15 billion rupees via secondary market transactions in January alone.

Furthermore, the central bank has injected approximately 440 billion rupees through a dollar/rupee buy-sell swap and an additional ₹1.82 trillion through short-term repos, ranging from four days to 56 days. Over the last five weeks, the RBI has infused ₹3.25 trillion into the banking system to ensure liquidity remains adequate.

By adjusting daily overnight repo operations based on the banking system’s requirements, the RBI has successfully maintained overnight rates close to the policy rate.

Global and Domestic Factors Influencing Market Sentiment

Apart from domestic monetary policy actions, global factors are also influencing investor sentiment. The Federal Reserve’s policy meeting minutes, set for release on Wednesday, will provide insights into the U.S. central bank’s stance on interest rates and monetary policy direction.

On the domestic front, the RBI’s policy meeting minutes, scheduled for release on Friday, will offer further clarity on the central bank’s outlook following its recent 25-basis-point rate cut on February 7. This marked the first rate cut in nearly five years and has drawn keen interest from market participants.

Meanwhile, Indian state governments will conduct bond auctions later in the day, while the central government will hold a debt sale on Friday. These auctions will be closely watched for investor demand and pricing trends.

Outlook for Bond Markets

With key events on the horizon, market participants are likely to remain on the sidelines in the near term. However, the RBI’s ongoing liquidity measures and bond purchases are expected to provide stability to the market. Additionally, any signals from the Federal Reserve regarding future policy actions could have an impact on foreign inflows into Indian debt markets.

Overall, bond yields are likely to trade in a narrow range unless any unexpected developments emerge later in the week.