Govt bond yields a tad down, traders stay put before key triggers

Indian government bond yields traded in a narrow range on Tuesday and ended marginally lower as investors eyed debt purchase from the central bank after a market holiday. 

The benchmark 10-year yield was at 6.6859%, compared with its previous close of 6.6930%. Indian debt and foreign exchange markets are shut on Wednesday for a local holiday. 

Minutes of the Federal Reserve's January monetary policy meeting are due on Wednesday evening. Traders have put calls on hold as they watched for the Fed minutes, likely awaiting guidance on when the central bank could cut rates next, as well as the Indian central bank's upcoming debt purchase. 

The Reserve Bank of India will buy bonds worth Rs 40,000 crore ($4.60 billion) on Thursday. This auction includes the benchmark security, which was purchased by the RBI in its first open market operation (OMO) auction in January, but excluded in an auction last week. 

Sentiment for benchmark security also supported downward move in yields, as foreign investors bought this paper even as they remained broad sellers of bonds this month. 

The RBI has bought bonds worth Rs 60,000 crore through OMOs and another Rs 38,800 crore through secondary market purchases over the last one month. Traders anticipate the central bank to continue such purchases till end of March. 

The RBI has also infused around 440 billion rupees though the dollar-rupee buy/sell swaps and 1.82 trillion rupees through repos.

The central bank's liquidity push amid a rate easing cycle is likely keeping sentiment upbeat among investors, traders have said.

"Going ahead, we expect bond markets to remain supported amid scope for incremental OMO purchases amid continued liquidity tightness, lower supply and policy easing," said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank. 

Traders also await the penultimate debt auction from the central government, in which New Delhi will raise 340 billion rupees through the sale of bonds on Friday.