MUMBAI, July 15 (Reuters) – Indian government bond yields may move higher in early deals on Tuesday as sentiment weakens after the country’s central bank announced yet another liquidity withdrawal operation, hinting that policymakers expect higher overnight rates.
The yield on the benchmark 10-year bond is expected to trade between 6.30% and 6.33%, a trader at a private bank said, after closing at 6.3163% on Monday. The five-year 6.75% 2029 bond ended at 6.0025%.
“With a shorter duration reverse repo following a seven-day, it is now clear that this would be the pattern and the central bank will ensure that overnight rates remain within the monetary policy corridor,” the trader said.
The Reserve Bank of India will conduct a three-day variable rate reverse repo auction (VRRR) for 1 trillion rupees ($11.63 billion) later in the day. This would be in addition to 1.52 trillion rupees that it sucked out from the banking system on Friday via a seven-day VRRR.
India’s weighted average interbank call money rate stood at 5.31%, while weighted average tri-party repo (TREPS) rate dropped to 5.19%, down 11 basis points from previous session.
This is the second straight week that the RBI is conducting a shorter duration VRRR, after doing a seven-day move.
Meanwhile, India’s annual retail inflation slowed to a more than six-year low of 2.10% in June. This was lower than the 2.5% estimated by economists in a Reuters poll and 2.82% in May.
Core inflation, which excludes volatile items such as food and energy and is an indicator of domestic demand, however, was at 4.4%-4.5% in June, from 4.17%-4.20% in May, according to economists.
RATES India’s overnight index swap rates (OIS) are expected to see paying pressure on liquidity withdrawal, while elevated U.S. yields will hurt the long end.
The one-year OIS rate ended at 5.54% and the two-year OIS rate at 5.51%. The liquid five-year finished at 5.7350%. KEY INDICATORS: ** Benchmark Brent crude futures fell 0.3% to $69 per barrel after easing 1.6% in the previous session ** Ten-year U.S. Treasury yield was at 4.4373%; two-year yield at 3.9040% ** Indian states aim to raise 269 billion rupees via sale of bonds ** RBI to conduct three-day variable rate reverse repo auction worth 1 trillion rupees ($1 = 86.0000 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Rashmi Aich)
