MUMBAI: Indian government bond yields could rise marginally in the early session on Friday, tracking US peers, while traders await fresh debt supply.
The 10-year benchmark 7.26% 2033 bond yield is expected to be in the 7.09% to 7.14% range after closing at 7.0987% in the previous session, a trader with a private bank said.
There is a reversal in US yields, and that should curtail the rally seen in government bonds over the last one week, the trader said.
Besides, traders will watch out for the response to auction to gauge if last week’s strong demand persists, the trader added. New Delhi aims to raise 310 billion rupees ($3.79 billion) through the sale of bonds later in the day, which includes the liquid 14-year notes that have been leading the gains in the last few days.
Bond yields started a declining trend after stronger-than-expected demand at last week’s debt sale, largely led by foreign banks and traders.
Meanwhile, the 10-year US yield moved above the 3.50%handle as investors weighed a coming showdown over the US debt ceiling with economic data suggesting inflation could remain sticky.
India bond yields little changed as traders eye supply, Fed meet
The two-year US yields, which is a closer indicator of interest rate expectations moved back to 4.10% levels, with the odds of a 25 basis-point rate hike by the US Federal Reserve on May 3 rising to above 90% again.
The odds had eased to below 80% earlier this week, from above 90% last week.
Indian bond yields will continue to fall this fiscal year as the Reserve Bank of India is unlikely to hike interest rates any further, said Ashish Agrawal, head of forex and emerging markets macro strategy research for Barclays Asia.
Post the April rate pause, “we expect the 10-year yield should ease to the 6.75-7.00% range by the end of this financial year,” Agrawal said.
The RBI maintained the status quo on its policy rate earlier this month, and easing domestic inflation has cemented bets of a prolonged pause.
India’s March retail inflation dropped to 5.66% and is expected to ease below 5% in April.
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