Indian sovereign bonds remain flat ahead of RBI’s buyback auction

The Indian sovereign bonds remained flat Thursday as investors remain cautious ahead of a buyback of sovereign papers tomorrow by the Reserve Bank of India (RBI).

The yield on the benchmark 10-year bonds, which moves inversely to its price, hovered around 6.86 percent, the yield on long-term 30-year note also remained flat at 7.45 percent while the yield on short-term 1-year note traded around 6.33 percent by 08:10 GMT.

India’s federal government will buy back four securities worth up to INR200 billion through a reverse repo auction on February 16, the RBI said in a statement on Tuesday. This will be the third such auction this fiscal year that ends on March 31.

The securities to be repurchased include the 7.49 percent bond maturing in 2017, 8.07 percent in 2017-Jul, 7.99 percent 2017 and 7.46 percent 2017.

RBI surprised the markets by keeping rates unchanged at 6.25 percent. Market expectations were for a 25bp rate cut given falling inflation and the negative effects of demonetization. Instead, RBI viewed both factors as transient. It also shifted to a neutral stance from an accommodative one.

Further, rate cuts are not ruled out but this will depend on the inflation profile which will be dictated by oil prices, INR stability, and impact the latest 7th Central Pay Commission award.

Apart from a busy state election calendar, there is considerable uncertainty over the impact of demonetization on growth. Implementation of the Goods and Services Tax (GST) is also pending for the second half of the year, reported DBS Bank in its research note.

Meanwhile, the 30-share benchmark Sensex traded 0.34 percent higher at 28,252.50, while the 50-share benchmark Nifty futures traded 0.48 percent or 41.80 points up at 8,766 by 08:10 GMT.