India benchmark bonds fall on supply reshuffle before RBI policy

Benchmark Indian government bonds fell on Monday following an increase in the share of their issuance in New Delhi’s fiscal second half borrowing plan, with traders also turning cautious ahead of Wednesday’s central bank policy decision.

The yield on the 10-year benchmark note jumped 3 basis points to 6.5547%, its highest level in four weeks. It closed at 6.5231% on Friday.

Bond yields rise when prices fall. India slashed the proportion of ultra-long 30- and 40-year bonds in its October-March federal borrowing plan on Friday, but ramped up the supply of 10-year securities. The government is slated to raise 6.77 trillion rupees ($76.30 billion) in the second half of the fiscal year.

Of this, more than 28% will be borrowed by selling 10-year bonds, with weekly auction sizes raised to 320 billion rupees from 300 billion rupees in the first half. Market participants are now staking out positions with an eye on the Reserve Bank of India’s policy rate decision on Wednesday. A majority of respondents in a Reuters poll forecast expect that key rates will be kept unchanged, but a surprise cut is not ruled out.

More than a cut, traders are anticipating dovish commentary.

“Sometimes the strongest policy move is restraint, and a dovish pause builds trust, steadies expectations, and keeps future options open,” said Laukik Bagwe, fixed income head at ITI Mutual Fund.

RATESIndia’s overnight index swaps (OIS) inched higher as traders awaited the RBI policy.

The one-year OIS rate closed slightly higher at 5.47% and the two-year OIS rate rose 1 bp to end at 5.46%. The most liquid five-year OIS rate was little changed at 5.7450%.

($1 = 88.7300 Indian rupees)