Bearish bets to persist in India 10-year bond, valuation buying to cap downside

MUMBAI: India’s 10-year benchmark bond could face some selling pressure early on Tuesday after the government announced the auction of a new 10 year paper for this week, though quarter-end valuation-led buying may lend somesupport.

The yield on the 10-year benchmark note is expected to move between 6.52% and 6.58%, a trader at a private bank said. It closed at 6.5547% on Monday.

Bond yields move inversely to prices.

“The announcement has taken some market participants by surprise as there was room for one more auction of the benchmark 2035 paper. This move could see traders cutting some positionsin the benchmark,” the trader said.

Despite this, quarter-end valuation buying and caution ahead of the Reserve Bank’s of India’s monetary policy decision on Wednesday is expected to cap any significant rise in yields.

India will auction a fresh 10-year government bond on Friday to raise 320 billion rupees ($3.61 billion). This note will replace the existing benchmark paper in the coming days.

This comes after New Delhi raised the share of the 10-year bond in its October-March borrowing plan to over 28%, while reducing the supply of ultra-long 30-50-year notes.

The government is set to raise 6.77 trillion rupees from October to March, after selling debt worth 7.95 trillion rupees from April to September.

All eyes are now on the RBI’s policy decision. A majority of respondents in a Reuters poll expect key rates to be kept unchanged, but firms such as Citi, State Bank of India, Capital Economics and Barclays have not ruled out a surprise cut.