India bonds little changed, debt auction cutoff to guide

MUMBAI: Indian government bonds traded steady in early deals on Friday, as traders remained focused on cutoffs on fresh debt supply, for near-term directional cues. The benchmark 6.94% 2036 bond yield was at 7.0497% as of 10:30 a.m. IST, after closing at 7.0463% in the previous session. New Delhi will raise 280 billion rupees ($2.92 billion) through a bond sale later in the day, including the liquid 15-year paper. “ (The) market is in a bearish mode, and even if auction demand is decent, the yield may not ease below 7.02%-7.03% range,“ a trader with a primary dealership said. Sentiment has turned fragile in part due to the Reserve Bank of India announcing open market debt sales worth 1 trillion rupees for September. In its first such operation in nine years, the RBI drained liquidity equivalent to nearly 0.2% of total bank deposits on Thursday. The RBI is set to sell 250 billion rupees of bonds on Monday and a similar quantum on September 28. Traders expect the central bank to step up bond sales for liquidity absorption, as policymakers likely seek to strengthen transmission through the banking system before expected rate hikes. Excess banking-system liquidity can weaken monetary-p