Indian government bond yields are expected to ease marginally in early trading on Monday, as traders await a scheduled debt purchase from the central bank later in the day.

The yield on the new benchmark bond maturing in 2035 (IN063335G=CC) is expected to move between 6.20%-6.24%, a trader with a private bank said, compared with the previous close of 6.2233%. The 2034 bond yield (IN067934G=CC) had ended at 6.2682% in the previous session.

“We have already seen a strong rally in prices last week, and the momentum remains positive. With another bond purchase, yields could test further lows, with 6.20% on the cards for the new benchmark,” the trader said.

The Reserve Bank of India is scheduled to buy bonds worth 250 billion rupees ($2.92 billion) later in the day, after having bought bonds worth one trillion rupees over the last two weeks.

The central bank has purchased bonds worth 3.65 trillion rupees in January-April.

Bond yields plunged last week due to the RBI’s bond buying activities, along with a softer-than-expected retail inflation print for April, which remained below the central bank’s 4% target for the third consecutive month, opening up room for more interest rate cuts.

Traders now await the quantum of RBI’s dividend payment to the government to further gauge the liquidity situation.

Meanwhile, the 10-year U.S. Treasury yield US10Y was moving towards 4.50% mark, after Moody’s downgraded the U.S. government rating from AAA to AA1, saying the fiscal performance is likely to deteriorate.

RATES

India’s overnight index swap (OIS) rates are seen trading with a mild receiving bias. The one-year (INR1YMIBROIS=CC) OIS rate was at 5.62%, the two-year (INR2YMIBROIS=CC) OIS rate was at 5.49%, and the most liquid five-year (INR5YMIBROIS=CC) OIS rate ended at 5.67%.

KEY INDICATORS:

** Brent crude futures BRN1! were 0.2% lower at $65.25 per barrel, after dropping 1.4% in the previous session

** Ten-year U.S. Treasury yield US10Y at 4.4829%; two-year yield (US2YT=RR) at 3.9784%

** RBI to conduct government bond switch worth 280 billion rupees

** RBI to buy bonds worth 250 billion rupees

** RBI to conduct one-day variable rate repo auction for 250 billion rupees

($1 = 85.4990 Indian rupees)