The 10-year benchmark 7.26% 2032 bond yield ended at 7.1856%, the lowest level since Sept. 14, after closing at 7.2206% in the previous session. The yield ended four basis points lower on a weekly basis.
The Reserve Bank of India sold government bonds worth 330 billion rupees ($4.02 billion) at higher-than-expected cutoff prices, which dealers said, spurred short covering and a rally in bond prices. Foreign banks largely cornered the 7.26% 2033 bond, which is likely to replace the current benchmark 7.26% 2032 soon, according to traders.
"Most traders were not expecting such demand at the auction and were caught unawares, which led to aggressive short covering," a trader with a primary dealership said.
Earlier in the day, the market sentiment was cautious after minutes of the RBI's latest meeting showed that India's current rate tightening cycle may not be over as more hikes could be warranted to align inflation towards the central bank's medium-term target of 4%. The RBI surprised markets by holding the key lending rate steady at 6.50% on April 6, going against expectations of a 25 bps increase. While the minutes indicated a hawkish tone from the policymakers, most market participants expect the RBI's pause to be prolonged in nature.
"I believe the RBI will remain on a pause for an extended period as there is no room for cutting rates also in the immediate future," Mahendra Jajoo, chief investment officer of fixed income at Mirae Asset Investment Managers India said.
Now, the bar for the RBI to hike is also equally tough
because inflation is on the decline and is expected to decline
further, he added.
($1 = 82.0725 Indian rupees)
(Reporting by Bhakti Tambe; Editing by Sohini Goswami)
