Indian bonds gain as RBI announces surprise note buying

The Indian bonds gained Wednesday as the Reserve Bank of India surprised traders with an announcement of an open market buying of government gilts. Also, the bond prices gained following the United States debt market, which bolstered by a weaker than expected ISM non-manufacturing reading that came in around 51.4, its lowest level since January 2010.

The yield on the benchmark 10-year bonds, which moves inversely to its price, remained fell 4 basis points to 7.055 percent, the 5-year note yield also dipped nearly 2 basis points to 6.958 percent, the super-long 30-year Treasury yield fell 5 basis points to 7.205 percent and the short-term 2-year note yield slid nearly 1 basis point to 6.813 percent by 07:00 GMT.

According to Reuters, the Reserve Bank of India will purchase five securities maturing from 2017 through 2030 for up to 100 billion rupees tomorrow under the so-called open market operation, it said in a statement. The OMO will be the eighth such auction in the current fiscal year that started April 1. So far in this fiscal, the RBI has bought 905 billion rupees of government bonds, as it seeks to infuse durable liquidity in the banking system.

The August ISM estimate of United States national non-manufacturing conditions revealed downward pressure in the composite index reading to 51.4 (lowest since January 2010), versus the unrevised 55.5 reading that occurred in July. This comes in below market expectations for a 55.0 result.

Last week, India’s second quarter GDP growth slows to 7.1 percent q/q, compared to 7.9 percent in January-March quarter driven by the slowdown in mining, construction and farm sectors. This was the lowest print recorded in last six quarters.

Meanwhile, the Sensex rose 0.14 percent or 49.86 points to 29,027.88 and Nifty-50 futures traded 0.14 percent higher or 13.50 points at 8,977 by 07:20 GMT.