Indian bonds flat swaps surge on RBI chief 's comments

MARKETS-INDIA-BONDS:Indian bonds flat swaps surge on RBI chief 's comments

mumbai  June 20, 2012, 19:23 IST

mumbai  06 20, 2012, 19:30 IST

 

Government bond yields ended largely flat on Wednesday as comments from Reserve Bank of India chief further dashed hopes of any near-term rate cuts, offsetting the positive impact of more bond purchases by the central bank.

RBI's Duvvuri Subbarao said late on Tuesday inflation was above acceptable levels, in his first remarks about interest rates after the RBI stunned markets by keeping rates on hold on Monday.

The RBI decision sent 10-year bond yields sharply higher on Monday, though some of the sting was offset on expectations the central bank will inject liquidity via open market operations as needed.

 

The RBI on Tuesday announced it would buy up to 120 billion rupees this week via OMOs. A Reuters poll out on Wednesday showed traders expect 1 trillion rupees in OMOs for the remainder of the fiscal year ending in March 2013.

The yield on the benchmark 10-year bond ended unchanged at 8.39 percent, but remains up 5 bps for the week compared to Friday's closing levels.

However, interest rate swaps were more impacted on Subbarao's comments. The 1-year overnight indexed swap rose 5 basis points to 7.84 percent, while the longer-end 5-year rate was flat at 7.28 pct.

The 1-year swap rate has surged 30 bps this week, reflecting the dashed expectations for any near-term cuts in the repo rate, currently at 8.00 percent.