MUMBAI: Indian government bond yields traded marginally higher on Friday as traders focus on the upcoming debt sale, while steadily rising US yields further hurt investor appetite.
The 10-year benchmark 7.26% 2033 bond yield was at 7.0167% as of 10:00 a.m. IST, after closing at 7.0068% in the previous session. New Delhi aims to raise 310 billion rupees ($3.75 billion) through the sale of securities, which includes the liquid 14-year bond.
“Though the market is ignoring the upward momentum in US yields, underlying fears have crept in and we could see some weakness in demand at the auction today,” a trader with a primary dealership said. US yields continue their upward momentum as data showed strength in the US labour market amid ongoing debt ceiling negotiations.
The number of Americans filing new claims for unemployment benefits rose moderately last week and the prior week’s data was revised sharply lower, suggesting persistent labour market strength.
The still-strong economy could keep inflation “sticky” and harder to lower to the central bank’s 2% target, while recent hawkish comments from Federal Reserve officials added to selling pressure on Treasuries.
This has pushed the odds of another 25-basis-point (bps) rate hike in June to 37%, from nearly 5% at the beginning of May.
The Fed has raised rates by 500 bps since March 2022 to 5.00%-5.25%.
Even as US yields continue to rise, local bond yields have remained resilient and stayed at around the 7% level.
This has pushed the spread between the two to below 325 bps, a level last seen in August 2009.
Indian bond yields seen tad higher, US Treasury moves in focus
However, analysts do not expect this level to sustain for long.
Meanwhile, India’s economy will grow about 6% this fiscal year with a small increase in private investment, according to a Reuters poll of economists, who said lower growth and high inflation were the biggest risks to the outlook.
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