Indian Bonds Edge Higher Ahead of RBI Policy, Debt Buyback in Focus
Investors position for record bond buyback while awaiting cues from the central bank’s final monetary review of the fiscal year.
India, Feb 05 : Indian government bonds traded slightly stronger on Thursday morning as market participants maintained bullish positions ahead of the Reserve Bank of India’s scheduled debt purchase, with attention increasingly turning to the central bank’s policy announcement due Friday.
The benchmark 6.48% 2035 bond yield stood at 6.6944% at 10:00 a.m. IST, marginally lower than the previous close of 6.6972%. Yields have declined by seven basis points over the past two sessions, reflecting improved demand. Bond prices typically move in the opposite direction of yields.
The RBI is set to purchase securities worth Rs 500 billion, including the actively traded 6.33% 2035 paper. Traders are expected to closely track the cutoff yield from the operation for indications about the central bank’s policy outlook. The move marks the final tranche of the current open market operations programme, which will take total purchases to a record Rs 6.8 trillion.
Market participants suggested that the scope for a sustained rally may depend on how aggressively the RBI targets specific securities and whether the purchase signals a preference for softer yields.
While the debt operation is providing near-term support, the upcoming monetary policy decision remains the primary driver of sentiment. Economists largely anticipate that the central bank will keep interest rates unchanged but could adopt a supportive tone alongside potential liquidity-enhancing measures, such as additional bond buying.
Madhavi Arora, economist at Emkay Global, said investors will also watch for regulatory adjustments aimed at easing bank capital constraints and improving credit flow. She added that systemic liquidity could rise to around Rs 2.4 trillion by the end of March, potentially reducing the need for further liquidity injections.
In the derivatives market, overnight index swap rates inched lower as traders awaited policy clarity. The one year OIS rate was quoted at 5.50%, the two year at 5.63%, and the five year at 6.06%.
