Indian Bonds Rebound as RBI Buying Hopes Rise; 10-Year Yield Eases to 6.52%

Indian government bonds rebounded on Tuesday after declining for three straight sessions, as bargain hunters stepped in, with some traders pointing to possible Reserve Bank of India buying in the secondary market.

A drop in U.S. Treasury yields also aided sentiment.

The yield on the benchmark 10-year note ended at 6.5258% after closing at 6.5435% on Monday.

Bond yields move inversely to prices.

The 10-year yield briefly climbed to the key technical level of 6.55% before falling.

The yields on India's longer-duration bonds also fell as large investors lapped up debt, traders said.

The yield on the 6.90% 2065 bond fell 2.5 bps to 7.3602% during the day after hitting its highest level since issuance on Monday.

Bond market participants had been paring positions in the last three sessions, on growing conviction that recent purchases by the RBI were to replace maturing debt rather than to push yields lower.

The central bank bought bonds worth 124.70 billion rupees ($1.41 billion) in the week ending November 7.

Market sentiment now hinges on whether the RBI increases its debt purchases in the market this week, traders said.

"The RBI was likely buying in the secondary market," said Debendra Kumar Dash, senior vice president of treasury at AU Small Finance Bank, adding that inconsistency in the central bank's action is creating uncertainty in the market.

Meanwhile, the 10-year U.S. Treasury yield fell 2 basis points to 4.1115% in Asian hours.

Focus is now on the Federal Reserve's meeting minutes due Wednesday, for cues on the U.S. rate-easing trajectory.

RATES

India's overnight index swap (OIS) rates dipped on Tuesday, as lower U.S. and India bond yields spurred some receiving.

The one-year OIS rate, the two-year rate and the most liquid five-year swap rate each fell 1.5 bps to 5.4575%, 5.4525% and 5.74%, respectively.