India bonds tread water before hefty state debt sale

The benchmark 10-year yield was at 6.5969% by 10:20 a.m. IST. It ended at 6.5912% on Monday.

Bond yields rise when prices ‌fall.

Indian states ‌will raise 354.50 billion rupees ($3.94 billion) through the sale of bonds later in the day, ‌the highest amount in over three months, and around 200 billion rupees more than the scheduled amount. A widening liquidity squeeze is also adding to the pressure, with the banking system in cash deficit since December 16 and the shortfall at 715.8 billion rupees, as of Monday.

To shore up liquidity, the Reserve Bank of India has purchased a ‌record 7 ‍trillion rupees of bonds in 2025. It is scheduled ‍to buy another 1.5 trillion rupees in January, ‌along with another foreign exchange swap worth $10 billion. “The RBI’s open market purchases have supported the market, but a state debt supply glut is dampening risk appetite,” a trader at a private bank said. The market is also fearing a heavier fourth-quarter debt calendar, which is expected to be released this week.”

Analysts estimate a total debt supply ‍of around 8.1 trillion rupees for January-March, including about 3.1 trillion rupees from New Delhi and 5 trillion rupees from ‍states, taking ⁠the quarterly supply to ⁠a record high and roughly 25% above the current quarter.

The RBI is also set to conduct a two-day variable-rate repo auction of 2 trillion rupees later in the day. RATES

India’s overnight index swap rates were unchanged in early deals, as trading interest faded near the calendar year end.

The one-year OIS rate was at 5.48%, while the two-year OIS rate stood at 5.5775%. The five-year OIS rate hovered at 5.9350%.

($1 = 89.9400 Indian rupees).