Indian Government Bonds Stay Flat as Traders Await ₹290 Billion Debt Sale
Indian government bonds remained flat in thin trading as traders awaited Friday's ₹290 billion debt auction amid heavy supply concerns. Despite the RBI's record ₹4.7 trillion bond purchases this fiscal year, market sentiment stays subdued due to the massive supply pipeline, including states' record ₹5 trillion borrowing plan for Q4. Market participants are watching for potential Bloomberg Aggregate Index inclusion, which could bring $10-20 billion in inflows according to Goldman Sachs.
*this image is generated using AI for illustrative purposes only.
Indian government bonds remained largely unchanged in thin early trading on Thursday, as traders focused their attention on the upcoming debt sale amid a lack of major market catalysts. The benchmark 10-year 6.48% 2035 bond yield stood at 6.61% as of 10:05 a.m. IST, compared to Wednesday's closing level of 6.61%.
Bond Market Performance
| Parameter: | Details |
|---|---|
| Benchmark 10-year yield: | 6.61% |
| Previous close: | 6.61% |
| Trading volume: | Thin |
| Market direction: | Flat |
A trader with a state-run bank noted the absence of significant market drivers, explaining that "there is nothing to look forward to for the day, and hence traders will now become active only on the auction day."
Upcoming Debt Auction and Supply Concerns
New Delhi is scheduled to auction ₹290 billion ($3.20 billion) worth of government bonds on Friday, comprising 15-year and 40-year securities. This auction comes at a time when state governments have announced plans to raise a record ₹5 trillion through bond issuances during the January-March quarter.
| Auction Details: | Amount |
|---|---|
| Friday's auction: | ₹290 billion |
| Bond tenure: | 15-year and 40-year |
| State borrowings (Q4): | ₹5 trillion |
Despite the Reserve Bank of India 's aggressive debt buying program, bonds have remained under pressure due to supply concerns. The central bank purchased ₹500 billion worth of bonds earlier this week and is set to bid for twice that amount through additional purchases scheduled until January 22.
RBI's Bond Purchase Program
The RBI has maintained an unprecedented bond buying spree this financial year, purchasing a record ₹4.70 trillion in government securities. However, these substantial purchases have failed to alleviate market concerns about the heavy supply pipeline.
| RBI Bond Purchases: | Amount |
|---|---|
| This financial year: | ₹4.70 trillion |
| This week: | ₹500 billion |
| Planned purchases (till Jan 22): | ₹1 trillion |
Market sentiment has remained subdued as the RBI has been selecting thinly-traded securities for these purchases, contrary to market expectations for inclusion of liquid papers and former benchmark bonds.
Bloomberg Index Inclusion Prospects
Traders are closely monitoring the potential inclusion of Indian bonds in the Bloomberg Aggregate Index, with an announcement expected as early as next week. Goldman Sachs estimates that such inclusion could generate inflows ranging from $10 billion to $20 billion, providing significant support to the bond market.
Interest Rate Swaps Market
India's overnight index swap rates showed mixed trading patterns with limited activity:
| OIS Rates: | Level |
|---|---|
| One-year: | 5.46% |
| Two-year: | 5.55% |
| Five-year: | 5.91% (marginally down) |
The swap market reflected the overall cautious sentiment as participants await clearer directional cues from the upcoming debt auction and potential policy developments.
Historical Stock Returns for Bank of India
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| 0.0% | -0.04% | +6.36% | +25.62% | +46.77% | +188.66% |
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