MUMBAI: Indian government bond yields are expected to be largely unchanged in early session on Tuesday, as traders await heavy state debt sale as well as growth data later in the day.
The 10-year benchmark 7.26% 2032 bond yield is expected to trade in the 7.43%-7.48% band till the state debt sale, after closing higher at 7.4533% on Monday, a trader with a private bank said.
The yield has risen 11 basis points (bps) in the last seven sessions.
“After the selloff yesterday, we may see some consolidation in the 7.45%-7.47% band, with a focus on demand for state debt at the auction,” the trader said.
Indian states aim to raise 328.33 billion rupees ($3.97 billion) through the sale of bonds; the quantum is at its highest level in 11 months.
Heavy supply comes at a time when investor appetite is weakening on fears of higher inflation and more rate hikes from the Federal Reserve and the Reserve Bank of India (RBI).
Retail inflation surprised on the upside in January with the reading at 6.52%, above the central bank’s 6% upper tolerance level, highlighting the need for more hikes.
The RBI raised the repo rate for a sixth consecutive time to 6.50% in February and kept the door open for more tightening. J.P. Morgan, in a note, said the RBI’s work is not done just as yet.
India benchmark yield at 4-month high as rising US yields, state supply hurt
“We expect another 25 bps rate hike in April,” it said. Market participants also await growth data for the October-December quarter.
The Indian economy likely grew 4.6% year-on-year, according to a Reuters poll of economists, on weak global demand and monetary tightening by the Reserve Bank of India.
The economy had expanded 13.5% in April-June before moderating to 6.3% in July-September.