MUMBAI: Indian government bond yields were largely unchanged in the early session on Tuesday, as market participants awaited state debt supply, with bets of another low-volume trading day.
The benchmark 10-year yield was at 7.3104% as of 10:00 a.m. IST, after ending at 7.3194% on Monday.
If state debt sees weak demand, only then we may see more uptick in yields, or else the benchmark should be very flat today, a trader with a state-run bank said.
Thirteen Indian states are aiming to raise 231.47 billion Indian rupees ($2.80 billion) in the last auction for this quarter, by selling bonds maturing between eight years and 19 years.
The quantum at auction today is the highest in three months but largely as per schedule.
However, states have been borrowing far lesser through bonds compared to their schedule this financial year, with a difference of nearly two trillion rupees.
Sentiment remains cautious as trading volumes continue to slump in the last week of the calendar year, and were at their lowest in the last year on Monday.
Benchmark bond yield above 7.30% ahead of debt auction
Still, private banks that have scaled up their bond purchases are expected to continue placing their bets on the instrument, bankers have said.
“This is because of the deposit growth they have witnessed recently,” said Arun Bansal, executive director and head of treasury at IDBI Bank.
“Banks may also be looking to buy at high yields, with expectations of (interest) rate cuts next year, and gain on the holding period.” Meanwhile, the 10-year US yield stayed around 3.75%, while the benchmark Brent crude contract was around $85 per barrel, further adding to the cautiousness.
Bond yields have seen an uptick since the Reserve Bank of India highlighted inflation concerns going into 2023, despite having raised the repo rate by 225 basis points in 2022 in its battle to keep inflation within its mandate of 2%-6%.
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