MUMBAI: Indian government bond yields trended higher, with the benchmark yield breaching the key 7.30% mark in early session on Friday, as traders cut positions ahead of a fresh supply of debt through the weekly auction.
The benchmark 10-year yield was at 7.3044% as of 10 a.m. IST after ending higher for a fifth straight session to close at 7.2890% on Thursday.
“Traders are trying to discover a new comfort level after the Reserve Bank of India’s (RBI) policy, and the first auction will provide clarity about future trading range,” a trader with a state-run bank said.
New Delhi aims to raise 280 billion rupees ($3.40 billion) through the sale of bonds, including 120 billion rupees worth of the benchmark paper.
Bond yields have been rising in the last few days, especially after the RBI’s 35-basis points rate hike and hawkish stance at the monetary policy announcement on Wednesday.
Market participants are expecting another 25 bps move in February, followed by a prolonged pause.
Even as bond yields rose, state-run banks that sold government bonds in the last few sessions may not immediately turn buyers, as their focus shifts to cutting down investment under the statutory liquidity ratio (SLR) to fund credit growth, analysts said.
Indian bond yields little changed as Oct inflation meets estimates
Meanwhile, the benchmark Brent crude contract stayed below $77 per barrel, and was trading its lowest level in nearly a year on demand concerns.
India is one of the largest importers of crude oil, and price movements have a direct impact on retail inflation.
The country’s consumer price inflation likely cooled to a nine-month low of 6.40% in November, mainly due to a moderation in food prices, according to a Reuters poll of economists.
The data for November is due on Monday. Domestic inflation data would be followed by Federal Reserve policy decision, wherein the Fed is expected to hike rate by 50 basis points, after raising the same by 375 bps since March.
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