India bond traders seen leaning bearish in early trade with eyes on fresh supply

MUMBAI: Indian government bonds are set to start the session with a bias towards declining on Friday, as markets await fresh supply of debt at a time when slower foreign buying is testing domestic investor appetite.

The benchmark Indian 6.94% 2036 bond yield is expected to move in the range of 6.80%-6.84%, according to a trader at a private-sector bank, after closing at 6.8132% on Thursday.

Bond yields move inversely to prices.

New Delhi is due to raise 340 billion rupees ($3.55 billion) through sale of the benchmark note, which will take the outstanding value of this paper to 1.36 trillion rupees.

“We could see some selling initially with traders making space in their portfolios to absorb the new supply, but cutoffs would determine whether we test 6.85% before the central bank decision,” the trader said.

The Reserve Bank of India’s monetary policy decision is due on Wednesday.

It is widely expected to keep its key interest rate unchanged, according to a Reuters poll of economists.

The decision comes after the Federal Reserve held interest rates on Wednesday, though Chair Kevin Warsh said the central bank would remain focused on bringing inflation down, leaving markets uncertain over the policy outlook.

“Watching Kevin Warsh was disappointing as he tried to appear hawkish by saying that 2% inflation target is sacrosanct, but could not explain the reason for not taking any action like hiking rates,” said Sandeep Bagla, CEO, TRUST Mutual Fund.

Meanwhile, the benchmark Brent crude contract traded around $88 per barrel, as market participants digested proposed plans for a Saudi Arabia-led maritime coalition to boost defense cooperation around the Red Sea.