Indian bond yields little changed as traders await supply, RBI decision

MUMBAI: Indian government bond yields were largely unchanged on Tuesday, ahead of the state debt sale later in the day and the Reserve Bank of India’s (RBI) decision due on Wednesday. The benchmark 10-year yield was at 7.3172% as of 10:00 a.m., after closing higher at 7.3197% on Monday.

The market is not reacting much to a consistent rise in US yields, as they eye tomorrow’s monetary policy decision for further triggers, a trader with a state-run bank said.

The RBI’s Monetary Policy Committee will announce its decision on Wednesday, likely raising its key interest rate by 25 basis points (bps) to 6.50%, a Reuters poll of economists showed. More than three-quarters of economists, 40 of 52, expected the 25 bps raise, according to the poll conducted between Jan. 13-27.

The remaining 12 predicted no change at the meeting. The central bank has raised the repo rate by 225 bps since May to 6.25% to fight inflationary pressures. The retail inflation data for January is due on Monday, and Barclays expects a third consecutive reading of below 6%.

The RBI aims to maintain inflation in the 2.00%-6.00% band. Indian states aim to raise 202.50 billion rupees ($2.45 billion) through the sale of debt later in the session.

This comes after two consecutive weeks of above-250 billion rupees supply. Following the state debt sale is the sale of 80 billion rupees worth of green bonds on Thursday and 300 billion rupees worth of central government bonds on Friday.

Meanwhile, the 10-year US yield has risen 23 bps and the two-year yield, a closer indication of interest rate expectations, has jumped 37 bps in the last two sessions US yields rose as strong employment numbers as well as manufacturing data raised expectations that the Federal Reserve’s interest rate hikes will continue.

Indian bond yields jump ahead of RBI policy decision, tracking higher US peers

Fed funds futures traders now see rates rising above 5% in May, while before the release of the data, traders had expected the rate to peak at 4.88% in June.