Demand for debt sale to guide Indian bonds before RBI minutes

MUMBAI, Feb 21 (Reuters) – Indian government bond yields were largely unchanged on Friday as market participants awaited the outcome of the weekly debt auction and the minutes of the central bank’s latest policy meeting.

The benchmark 10-year yield was at 6.7022% as of 10:00 a.m. IST, compared with its previous close of 6.7043%.

New Delhi aims to raise 340 billion rupees ($3.93 billion) in its penultimate debt sale for the current financial year that ends in March. The auction will include the liquid five-year bond and a 30-year green bond.

“Market is cautious after yesterday’s open market purchase result, and hence we are unlikely to see any large move on either side,” a trader with a state-run bank said.

“If cutoffs are aggressive, then we can see some pullback or else, 10-year yield should be around 6.70% for the day.”

On Thursday, the Reserve Bank of India bought 400 billion rupees of bonds, but this included only about 41 billion rupees of the benchmark security, lower than the market’s estimate of 50-70 billion rupees.

The focus is on next steps by the RBI to infuse durable liquidity into the banking system. Thursday’s debt purchase marked the end of its mega liquidity infusion package announced in January.

Over the last five weeks, the RBI bought 1 trillion rupees of bonds via auctions, 388.15 billion rupees through secondary market purchases, and infused around 440 billion rupees through a dollar/rupee buy/sell swap.

It also injected 1.25 trillion rupees via long-term repos as part of the package. The RBI is set to infuse another 3.25 trillion rupees through a combination of overnight, 14-day and 45-day repos on Friday.

Attention is now on the minutes of the RBI’s February meeting, due after market hours. The central bank had lowered the repo rate for the first time in nearly five years this month.

Commentary from Governor Sanjay Malhotra, who presided over his first meeting, will be crucial, traders said. ($1 = 86.5550 Indian rupees) (Reporting by Dharamraj Dhutia Editing by Sonia Cheema)