Sovereign Indian bonds reversed losses amid speculation the central bank may be buying to help steady yields after the announcement of an economic package fanned concerns about a wider budget deficit.
Yields on 10-year bonds slid as much as eight basis points to to 6.08 per cent after surging by as much as 12 basis points earlier. Bonds sold off Monday after the administration raised its annual borrowing plan by more than half late Friday.
“There’s speculation the sharp reversal is due to the central bank being on the buying side in a market that has enough reasons to decline,” said Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership. There should have been a “reset” of 50-75 basis points in yields had it not been for the RBI’s presence, he said.
RBI spokesman Yogesh Dayal didn’t immediately respond to an email seeking a comment. Data from the Clearing Corporation of India showing Rs 1330 crore of bond purchases under the so-called ‘others’ category on Tuesday supported speculation of purchases by the RBI.
Market participants are looking forward to getting financing details of the package when Finance Minister Nirmala Sitharaman addresses the media at 4 pm local time Wednesday. So far, expectations that the $265 billion stimulus won’t add to the ramped-up borrowing target announced last Friday, have supported sentiments.
Yields have declined by about 50 basis points since end-January as the central bank deployed various tools to support the debt market.
Data shows it bought about Rs 90,000 crore of bonds from the secondary market in April. “There’s a belief that excess banking system liquidity and the RBI will support the market,” said Anoop Verma, vice president for treasury at DCB Bank.