India bonds may continue gains, demand at 2025's last debt auction eyed

Indian government bonds may continue their winning streak in ‍early deals on Friday, as the central bank's jumbo liquidity infusion package has lifted sentiment and ⁠put bullish investors in command before the year ends. The benchmark 10-year yield is likely to drift in a 6.50% to 6.54% band till the debt auction, a trader with a private ‌bank said. ‌It ended at 6.5398% on Wednesday. Bond yields rise when prices fall. Wednesday saw the 10-year bond yield ‌post its biggest single session drop in over seven months as the Reserve Bank of India said it will infuse about 2.90 trillion rupees ($32.35 billion) into the banking system over the next one month. This will include four tranches of open market bond purchases worth 500 billion rupees each for the next four weeks and a $10 billion three-year dollar-rupee buy/sell swap in January. The central ‌bank has ‍already bought 1 trillion rupees of bonds and conducted a $5 billion ‍foreign exchange swap in December. Over 2025, the RBI bought ‌bonds worth 6.5 trillion rupees, a record high, and infused 4.7 trillion rupees through FX swaps and slashing the cash reserve ratio for banks. Bond market participants that were concerned about rising borrowing costs in the coming quarter said the move opens the door for sustained gains in government bond prices, as well as ensuring banking system liquidity stays at an optimal level ‍till the end of this financial year. RATES India's overnight index swap rates are expected to ease marginally, as traders will avoid adding ‍into paid positions after ⁠RBI's massive announcement. The ⁠one-year OIS rate ended at 5.46%, while the two-year OIS rate ended at 5.54%. The five-year OIS rate eased 5 bps to settle at 5.9075% on Wednesday. KEY INDICATORS: ** Benchmark Brent crude futures marginally higher at $62.40 per barrel after easing 0.2% in the previous session ** Two-year U.S. Treasury yield at 3.5025%, 10-year U.S. Treasury yield at 4.1451% ** RBI to auction bonds worth 320 billion rupees ** RBI to set underwriting fees for 320 billion rupees of debt auction ($1 = 89.6520 Indian rupees).