MUMBAI: Indian government bond yields are expected to be relatively unchanged in the early session on Tuesday, as traders await fresh supply of debt through a sale of bonds by states.
India’s benchmark 10-year yield is expected to move in the 7.16%-7.20% range, following its previous close at 7.1790% on Friday, a trader with a primary dealership said.
India’s foreign exchange, bond and money markets were shut on Monday as the Maharashtra state government declared a public holiday.
“We are unlikely to see any major action, as US yields remain elevated, and there are no other major triggers driving the markets for now. Demand for state debt could provide some cues about investor appetite,” the trader said.
Indian states aim to raise 242.80 billion rupees ($2.92 billion) through a sale of bonds, marking the highest quantum in over two months and slightly exceeding the scheduled amount.
The auction will be followed by a central government bond sale, through which New Delhi will raise 330 billion rupees, including 160 billion rupees from benchmark papers.
US yields eased slightly on Monday ahead of key economic data during the week, which could influence the Federal Reserve’s monetary policy decision next week.
India bond yields follow US peers higher before debt auction
Still, the 10-year US yield stayed above 4.10%, as investors trimmed bets on the timing and pace of rate cuts by the Fed in 2024, following a slew of strong economic data in recent days.
Traders have now trimmed the odds of the first Fed rate cut by March to 43% from 81% on Jan. 12, while the probability of a 150 bps cut in 2024 has dropped to 47% from 91% in the same period, according to the CME’s FedWatch Tool.
Market participants will also be awaiting the Union Budget for the next financial year due on Feb. 1, where the government will target reducing the fiscal deficit as a percentage of GDP to 5.30% in 2024-25, from 5.90% in the current year ending March 2024, as per a Reuters poll.
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