MUMBAI: Indian government bond yields rose marginally in the early session on Tuesday as focus shifted to a continued rise in U.S yields, while the market awaits a debt sale by Indian states.
The 10-year benchmark 7.26% 2033 bond yield was at 7.0044% as of 10:00 a.m. IST, after closing at 6.9864% in the previous session.
“The impact from the expectations of liquidity spike is waning as far as longer duration papers are concerned, and slowly we are seeing an upward move in yields,” a trader with a primary dealership said.
US yields rose on Monday, with the 10-year yield posting its seventh consecutive rise, as investors await the outcome of debt ceiling talks, while Fed officials continue to deliver hawkish comments.
Minneapolis Federal Reserve President Neel Kashkari said it was a “close call” on a hike or pause for June, while St. Louis Fed President James Bullard said the Fed may still need to raise its rate by another half a percentage point this year.
Markets are currently placing odds of another rate hike by the US Federal Reserve in June at under 20%.
The 10-year US yield ended at 3.72% on Monday, jumping 32 basis points in the last seven days, while the two-year yield, a closer indicator of interest rate expectations, ended at 4.32% on Monday, gaining 41 bps during the same period.
Indian bond yields seen lower after RBI’s currency move to aid liquidity, debt buy
The Fed policy decision is due on June 14, while the Reserve Bank of India’s policy decision is due on June 8.
The Indian economy has sustained the growth momentum seen in the last quarter, while latest inflation outcome has been better than forecast, the RBI said on Monday.
Bond yields fell on Monday after the RBI said it would withdraw its highest denomination 2,000-rupee note from circulation, which is likely to improve banking system liquidity, bringing down recently elevated short-term rates.
Meanwhile, ten Indian states aim to raise 180.50 billion rupees ($2.21 billion) through sale of bonds later in the day.
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