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India Bonds Little Changed Amid Weak Appetite; CPI Data In Focus

Monday,   11-Feb-2019   01:30 PM (IST)

Indian government bonds traded little changed in a choppy afternoon session, as traders remained cautious on longer duration papers ahead of heavy supply in coming weeks, while they also awaited local retail inflation data, due tomorrow. The benchmark 7.17% bond maturing in 2028 changed hands at 97.69 rupees, yielding 7.53%, at 1:03 p.m. in Mumbai, against 97.72 rupees and a 7.52% yield at close on Feb. 8. The 7.26% 2029 bond was trading at 99.40 rupees, yielding 7.35%, against 99.47 rupees and a 7.33% yield at previous close. India will borrow an additional 360 billion rupees in March through bonds, taking the gross supply for this year to 5.71 trillion rupees. The government has planned a gross borrowing of 7.10 trillion rupees in the next fiscal, with the net borrowing pegged at 4.73 trillion rupees. Meanwhile, the central bank will conduct open market purchases worth 375 billion rupees in February, while some traders fear the quantum may be lower in March. RBI conducted OMOs worth 500 billion rupees in January. India’s retail inflation - the MPC’s key price gauge - fell to an 18-month low of 2.19% in December. The inflation data for January is due tomorrow. A Reuters poll expects the reading at 2.48%. Crude oil prices were lower as drilling activity in the U.S. increased and financial markets were pulled down by US-China trade talk worries. The benchmark Brent crude oil contract was 0.4% lower at $61.86 per barrel from its previous close. India imports about 80% of its crude oil requirements. Bonds had gained last week after India’s Monetary Policy Committee cut the key policy interest rate by 25 basis points to 6.25%, as it expects inflation to stay below target over the next year despite New Delhi’s expansionary fiscal proposals. The MPC cut its inflation forecast to 3.2%-3.4% for the first half of next fiscal year from 3.8%-4.2%, with risks broadly balanced. The central bank forecasts growth for the next fiscal year at 7.4%, up from 7.2% this year. India aims to keep the fiscal deficit at 3.4% of gross domestic product this year as well as the next year, wider than previous targets of 3.3% and 3.1%.