Indian bonds rise to 3-week high on FII limit reshuffle
The benchmark 10-year 2023 bond yield ended 1 basis point lower at 8.65%, after falling to its lowest since 4 July
Mumbai: Indian government bonds rose on Thursday to a three-week high after foreign institutional investors (FIIs) were allowed to buy more sovereign debt, but broader gains were capped amid caution ahead of the weekly debt auction, and tight liquidity conditions.
India on Wednesday raised the foreign institutions’ investment limit in government bonds by $5 billion to $25 billion while reducing the limit available to long-term overseas investors, thus keeping the overall cap at $30 billion as widely expected.
Bonds came under pressure as liquidity in the banking system has been tight throughout this week with outflows exceeding injections by the Reserve Bank of India (RBI).
Caution also prevailed ahead of the ₹ 14,000 crore debt auction on Friday, which will include ₹ 7,000 crore of a new 10-year debt that is expected to become the benchmark.
“It is unlikely that we will see any major drop in yields because of the FII limit enhancement, but we may see newer players enter in gradually," said Kaushal Mehta, vice-president at LKP Securities, a debt brokerage in Mumbai.
The benchmark 10-year 2023 bond yield ended 1 basis point lower at 8.65% compared with the previous close after falling to its lowest since 4 July.
The new 10-year bond ended at 8.36% in the when-issued market with seven trades reported, according to data from Clearing Corporation of India Ltd.
Dealers estimate the bond could be sold at a coupon of 8.35-8.40%.
The cash rate ended at 9.00/9.05%, after touching 9.25%.
This is above the repo rate of 8% and despite a seven-day term repo for ₹ 10,000 crore and 14-day term repo for ₹ 61,500 crore announced on Friday.
In the overnight indexed swap market, the benchmark five-year swap rate closed 1 basis point lower at 7.87%, while the one-year rate ended steady at 8.40%. Reuters
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