MUMBAI: Indian government bond yields were trading higher on Friday, as investors await fresh supply of debt which includes a new 10-year paper, while the central bank highlighting inflation concerns further strained sentiment.
Market participants also await the minutes of Reserve Bank of India’s latest policy meeting, which will be published post market hours on Friday. The benchmark 10-year government bond yield was at 7.2639% as of 0445 GMT.
The yield rose 6 basis points on Thursday to end at 7.2421% “Traders are lightening positions ahead of the new 10-year bond auction, and the central bank’s commentary on inflation has proved that Wednesday’s sharp move was unwarranted,” a trader with a primary dealership said.
The central government will sell bonds worth 330 billion Indian rupees ($4.14 billion) and the auction includes 130 billion rupees of the new 10-year note, which will replace the existing benchmark bond in coming weeks.
The 10-year bond is expected to witness strong demand from investors.
On Thursday, the RBI said inflation might still require a monetary policy response going forward as it remained above the target range despite easing in recent months.
“Inflation has edged down, but its persistence at elevated levels warrants appropriate policy responses to anchor expectations going forward,” the central bank said in an article on the state of the economy, published in its monthly bulletin.
India bond yields drop on weaker oil, easing inflation
India’s retail inflation dipped to 6.71% in July, easing for the third month in a row, and missing the 6.78% print forecast by economists in a Reuters poll.
Earlier this month, the RBI’s monetary policy committee had raised the bank’s key lending rate by 50 bps to 5.40%, its third increase in four months to curb rising price pressures.
The RBI has hiked repo rate by 140 basis points since May.
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