“We are witnessing continued demand from local banks, and we could see test of 6.90% today, but for any further moves, traders will wait for the Federal Reserve policy decision,” trader with a state-run bank said.
Demand from local banks has increased after the Reserve Bank of India released draft guidelines to bolster the liquidity resilience of lenders, which if implemented could lead to more demand for government securities.
Traders say some private and state-run banks have been buying since the last two sessions, as they will fall short of the requirement, and this should persist through this week.
Meanwhile, U.S. yields slipped as investors awaited the Fed‘s policy decision due on Wednesday, in which the central bank is expected to signal the start of rate cuts from September.
Investors will also pay close attention to Chair Jerome Powell’s remarks, and any dovish tilt could cement bets of 75 basis points reduction in 2024.
Investors have priced in 66 bps of rate cuts till the end of this year, according to the CME FedWatch tool.
Aiding sentiment, oil prices extended declines from Monday, with the benchmark Brent crude futures slipping below $80 per barrel for first time in seven weeks amid concerns about Chinese demand.
India is one of the largest importers of crude, and a sustained fall aids inflation outlook.
The government will sell bonds worth 220 billion rupees ($2.63 billion) on Friday, while states will raise 295 billion rupees via debt sale later in the day. ($1 = 83.7280 Indian rupees) 
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