Indian sovereign bonds trade mixed as markets await government’s INR110 billion auction, RBI in focus too

The Indian sovereign bonds traded narrowly mixed Friday as investors are eyeing the INR110 billion bond auction by the central government, scheduled to be held later in the day. Also, the Reserve Bank of India’s (RBI) first 2-day bi-monthly monetary policy meeting of 2017, scheduled to be held on February 7-8, is closely eyed by market participants.

The yield on the benchmark 10-year bonds, which moves inversely to its price, rose nearly 1 basis point to 6.40 percent, the yield on long-term 30-year note also rose 1 basis point to 7.05 percent while the yield on short-term 3-year note fell nearly 1/2 basis point to 6.30 percent by 07:00 GMT.

The Government of India has announced the sale of bonds amounting to INR110 billion later in the day through multiple price based auction. Up to 5 percent of the notified amount of the sale of the stocks will be allotted to eligible individuals and Institutions in the auction.

Further, the latest budget has encompassed a larger section of the income tax deduction, reducing the tax slab to 5 percent for those in the income bracket of INR2.5-5 lakh. However, following the footsteps of demonetization, the Finance Ministry also led to the conclusion that no cash transactions will be henceforth allowed beyond a limit of INR3 lakh.

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.

Lastly, markets are also awaiting the RBI’s first bi-monthly monetary policy meeting of 2017, scheduled to be held on February 7-8.

Meanwhile, the 30-share benchmark Sensex traded 0.20 percent lower at 28,168.76, while the 50-share benchmark Nifty futures traded 0.11 percent or 9.80 points down at 8,724.25 by 07:10 GMT.