MUMBAI: Indian federal bond yields ended down on Thursday for a second consecutive session on rising speculation the Reserve Bank of India will support markets via open market operations or bond purchases in secondary markets.
Bonds also benefitted from a safe-haven bid as global risk aversion increased, and as the rupee and equities fell on Thursday given concerns about India's economic and fiscal challenges, as well as foreign outflows.
Tight liquidity -- with repo borrowings above 1 trillion rupees for seven sessions in a row -- has sparked talk of secondary market intervention from the RBI, and now, speculation of more direct action via OMOs.
The 10-year benchmark 2021 bonds ended 1 basis point lower at 8.62 percent, after falling as much as 5 basis points during the session.
The 9.15 percent 2024 bonds fell 4 basis points to 8.65 percent. The debt was widely traded as the tranche will be included in Friday's 180 billion rupees ($3.37 billion) debt auction.
The spread between the 2024 bonds and the 10-year benchmark has narrowed to 4 basis points from 8 basis points a month ago and 15 basis points on Jan. 2.
"Both 9.15 percent, 2024 bonds and the 10-year benchmark bonds are candidates for OMOs, so why would the market sell these off?" said Sandeep Bagla, executive vice-president at ICICI Securities Primary Dealership Ltd.
Bagla said he expects these bonds to face downside resistance near 8.50 percent, a view shared by other traders.
Few analysts expect any meaningful rally in bonds, however, because of the government's heavy borrowing programme, while foreign investors have also turned sellers in broader Indian debt markets.
Foreign investors have sold a net 35 billion rupees ($660.56 million) in April according to provisional regulatory data, though they are still net buyers of about 158 billion rupees in the year-to-date.
The one-year swap rate ended 3 basis points higher at 8.05 percent, while the five-year rate was down 1 basis point at 7.57 percent.
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