India bond traders look for RBI guidance for directional break

By Dharamraj Dhutia

MUMBAI, June 6 (Reuters) - Indian government bond yields were flat in early deals on Friday, as the market has already priced in another rate cut from the central bank, and as traders await commentary for a break from rangebound moves.

The yield on the benchmark 10-year bond was at 6.1972% as of 9:30 a.m. IST, compared with Thursday's close of 6.1960%.

The Reserve Bank of India is widely expected to cut rates by 25 basis points for the third consecutive time this year, as muted inflation provides ample space to focus on boosting economic growth.

The announcement is due at 10:00 a.m. IST.

The RBI has lowered rates by 50 bps so far in 2025 and infused $100 billion into the banking system between December and May.

"If there is only a rate cut and no other major announcement, we could see strong selling pressure at least for the time being, and do not rule out the test of 6.25% on the new 10-year paper," a trader with a private bank said.

While most economists expect a 25 bps cut, the State Bank of India has said the RBI could slash rates by an outsized 50 bps to jumpstart the credit cycle.

Apart from rate cuts, markets are also betting on the central bank introducing additional liquidity measures, which would support short-end bonds.

New Delhi will sell bonds worth 360 billion rupees ($4.20 billion) later in the day.

RATES

Short-term overnight index swap (OIS) rates were not yet traded. The one-year OIS rate settled at 5.53% on Thursday, while the two-year OIS rate closed at 5.41%.

The most liquid five-year OIS stayed below its key technical level after a break in the previous session and was at 5.60%. ($1 = 85.7950 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Mrigank Dhaniwala)