India bonds rise as investors see value after 10-year yield nears 7.40%

MUMBAI: Indian government bonds moved higher in early deals on Tuesday as value investors took the reins, after a near one-way upmove in yields in recent sessions, even as investors await heavy debt supply later in the day.

The benchmark 6.94% 2036 bond yield was at 7.3723% as of 10:15 a.m. IST, after ending at 7.3857% on Monday, which was its highest closing level in the last three years.

India’s benchmark 10-year bond yield jumped 9 basis points on Monday, its biggest one-day spike in over six months.

The yield has risen 20 bps in the four sessions since last week’s central bank monetary policy announcement.

“Looking at the heavy purchases from local lenders, especially state-run banks, there is some confidence that the yield may not rise much from the current levels in the near term,” a trader with a state-run bank said.

Indian states will raise 312 billion rupees ($3.28 billion) of debt, while the Reserve Bank of India will sell bonds worth 250 billion rupees through an open market operation later in the day.

A 340 billion rupee sale of benchmark paper will follow on Friday.

The RBI’s latest currency market measures have clouded the outlook for banking system liquidity and the impact on banks’ treasury operations, which pushed up bond yields.

Traders also fear that the central bank will hike rates more aggressively to protect the local currency, after last week’s 25 bps increase and change in stance to calibrated tightening from neutral.

Bets of a December rate increase have hardened after September consumer inflation accelerated to 5.54%, while the benchmark Brent crude contract held above $105 per barrel.

Traders also awaited US inflation data due on Wednesday for cues on the Federal Reserve’s interest rate trajectory.