Indian federal bond yields fell on Friday, taking comfort from a large buyback by the central bank and aggressive buying at a 140 billion rupee ($2.7 billion) government bond auction. The Reserve Bank of India bought back 117.6 billion rupees of government bonds through open market operations on Friday, marginally less than the scheduled 120 billion rupees.
Bullish cut-offs for the new 8-year 2020 bond and the 9.15 percent 2024 bond also showed strong investor appetite, traders said. The 10-year benchmark bond yield ended down 6 basis points at 8.19 percent. Sandeep Bagla, senior vice president at ICICI Securities Primary Dealership, said the large open market operation by the RBI was encouraging.
"It shows their resolve to infuse liquidity through this route," he said. "The buying is coming on expectations of lower (December) inflation on Monday." Total volumes on the RBI's electronic trading platform were more than double the daily average at 208.65 billion rupees.
Foreign investors have been buying up Indian bonds before their debt purchase limits expire around mid-January, supporting the buying momentum, traders said. Foreigners have bought $2.61 billion of Indian debt so far in January, according to the Securities & Exchange Board of India.
Manish Wadhawan, head of interest rates at HSBC, estimated that foreigners have bought about 50 billion rupees of dated government securities since the start of January. "They are buying bonds across the range from two years to 10 years," he said. Recent comments from policymakers and November factory data have pushed back hopes of an imminent easing by the central bank, which will announce its policy decision on January 24.
Industrial output rose 5.9 percent in November in a sign that the economy may be picking up. The benchmark five-year swap rate was 5 basis points lower at 7.10 percent, while the one-year rate was down 3 basis points at 7.85 percent. "We believe December inflation will surprise on the upside on January 16," said Sailesh K. Jha, head of Asia strategy at Skandinaviska Enskilda Banken in Singapore, who expects the RBI to hold rates steady this time around. "The market is expecting the RBI to start cutting the cash reserve ratio and loosen monetary policy in the next few months. We beg to differ from market expectations," he said.