MUMBAI: Indian government bond yields rose marginally in early session on Friday, with the benchmark yield heading towards the 7% mark ahead of fresh supply from the weekly debt auction, and tracking a consistent rise in US yields.
Still, the rise in yields seemed to be capped as traders anticipated a larger-than-budgeted surplus transfer from the Reserve Bank of India to the government, which may aid fiscal math.
The 10-year benchmark 7.26% 2033 bond yield was at 6.9885% as of 10:00 a.m. IST after closing at 6.9866% in the previous session.
The only saving grace is speculations of a large dividend, else yields would have crossed 7% easily, a trader with a state-run bank said.
“Auction bidding pattern and cutoffs would be the key driver for moves at a time when US yields are seeing a one-way move.” New Delhi seeks to raise 330 billion rupees ($4.04 billion) through a sale of bonds, including 140 billion rupees of the benchmark paper, which has also led to short selling in this note.
Bond market traders are also expecting the RBI to transfer a surplus of over 1 trillion rupees as dividend to the government against a budgeted 480 billion rupees for the last financial year.
India bond yields little changed amid consolidation post recent drop
Meanwhile, US yields rose as data showed the economy kept ticking along despite higher interest rates, while two Fed policymakers said on Thursday inflation did not appear to be cooling fast enough to allow the US central bank to hit a pause in its rate-hiking campaign.
The 10-year US yield was around 3.65%, up nearly 25 basis points in the last five sessions, while the two-year yield, a closer indicator of interest rate expectations was at 4.25%, up 35 bps during the same period.
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