India bonds flat as traders look ahead to RBI policy; liquidity ebbs
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Indian government bonds tiptoed sideways on Tuesday as traders refrain from entering big new positions before next month's monetary policy review and as banking system liquidity tightened.The yield on the benchmark 10-year bond was at 6.2993% as of 10:45 a.m. IST, compared with Monday's close of 6.2996%.Bond yields move inversely to prices."Liquidity is a bit tight after 2 trillion rupees were parked in the central bank's VRRR auction, so we are not taking a view right now," a trader at a private bank said.India's banking system liquidity surplus stood at around 2.4 trillion rupees as on July 21, the lowest level in seven weeks, which has pushed up overnight rates.New Delhi will sell 300 billion rupees ($3.48 billion) of the benchmark 2035 paper on Friday.The 10-year benchmark yield will likely oscillate between 6.29%-6.32% till the central bank policy announcement, traders said.The next monetary policy decision from the central bank is due on August 6, with some traders anticipating another rate cut.The Reserve Bank of India slashed its key interest rate by 50 basis points last month, while changing its stance to "neutral" from "accommodative", which soured sentiment as market participants looked at the moves as limiting room for more easing.A lower-than-expected June inflation reading however, revamped expectations for further rate cuts. Retail inflation eased to 2.10%, the slowest pace in over six years.RATESIndia's overnight index swap rates remained rangebound in early deals, with slight upward pressure after heightened receiving bias on Monday.The one-year OIS rate inched up to 5.49%, while the two-year OIS rate was little changed at 5.46%. The liquid five-year OIS rate also edged higher to 5.69%.
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