Indian bonds gain on government’s unexpected buyback of notes

The Indian government bonds gained Monday after the government announced a buyback of Treasury notes.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell 1-1/2 basis points to 6.832 percent, the yield on super-long 30-year note also dipped nearly 2 basis points to 7.173 percent and the yield on short-term 2-year note slid 2-1/2 basis points to 6.544 percent by 07:00 GMT.

According to latest Reuters poll, majority of the economist expects the RBI to cut repo rate by 25 basis points to 6.0 percent in the first quarter of 2017. Also, economy to grow 7.7 percent in fiscal year ending 2017 and CPI forecast to average 5.1 percent in fiscal year 2016/17, as compared to previous 5.4 percent in July poll.

According to Reuters, the government will repurchase five securities up to 200 billion rupees, which include 8.07% 2017, 7.49% 2017, 8.07% 2017 - July, 7.99% 2017 and 7.46% 2017 papers later today, it said on Oct. 21. The government will decide the quantum of purchase of individual securities, the RBI said. This will be the first such auction this year.

The wholesale prices in India rose during the month of September at a pace slower than what markets had initially anticipated. India’s annual rate of inflation based on wholesale prices eased on a month-on-month basis to 3.57 percent in September from 3.74 percent in August. The annual wholesale inflation during the corresponding period last year stood at -4.59 percent.

After rising for the first time in April following 17 straight months of contraction, the Wholesale Price Index (WPI) has cumulatively risen by 4.28 percent in the current fiscal up to September. Meanwhile, wholesale food prices last month rose 5.75 percent year-on-year, compared with a provisional 8.23 percent gain in August.

Moreover, with India receiving 97 percent rainfall between June and September, the monsoon was "normal" this year, the India Meteorological Department (IMD) said on Thursday.

The Reserve Bank of India in its two-day monetary policy meeting in October, saw newly appointed monetary policy committee (MPC), headed by new governor Urjit Patel announce a rate cut by 25 basis points. All six of the monetary policy committee unanimously voted in favour of the rate cut.

Meanwhile, the Sensex rose 0.63 percent or 176.41 points to 28,253.59 and Nifty-50 futures traded 0.94 percent higher or 81.95 points at 8,785 by 07:10 GMT.