Indian bonds rise ahead of RBI’s cash management bills auction, MPC decision in focus

The Indian government bonds gained Tuesday ahead of the Reserve Bank of India’s (RBI) Cash Management Bills auction under the Market Stabilisation Scheme (MSS).

Also, market awaits the decision of the central bank Monetary Policy Committee (MPC) meeting, which is scheduled for December 7.

We continue to foresee that the 10-year bond yields to fell below 6 percent mark if the central bank cuts repo rate for the second time by 25 basis points to 6 percent.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell 1 basis point to 6.20 percent and the yield on short-term 2-year note slid 3-1/2 basis points to 6.02 percent by 07:10 GMT.

The Reserve Bank of India will conduct an auction of 35 days Government of India Cash Management Bills under the Market Stabilisation Scheme (MSS) for a notified amount of INR 60K crore tomorrow, December 06, 2016 using "Multiple Price Auction" method. The bids for the auction should be submitted in electronic format on the Reserve Bank of India Core Banking Solution (E-Kuber) system between 2 pm and 3 pm on Tuesday, December 06, 2016

The RBI next bi-monthly two-day monetary policy meeting is scheduled to be held on December 6-7. It is widely expected that the current trend of lower inflation expectations will provide wider space for the Governor Urjit Patel for further monetary easing. We foresee that the central bank will lower its repo rate by 25 basis points to 6 percent in its two-day monetary policy decision on Wednesday.

Moreover, the recent demonetisation drive of India government could be disinflationary in the near term and therefore strengthen the case for the Reserve Bank of India to ease in December.

Meanwhile, the Sensex rose 0.43 percent to 26,443, while Nifty-50 futures traded flat at 8,174 by 07:10 GMT.