MUMBAI: Indian government bond yields rose in the early session on Wednesday, as their US counterpart climbed above the crucial 4% handle, while the possibility of elevated inflation data for July continued to unsettle investors.
The benchmark 7.26% 2033 bond yield was at 7.1754% at 10:00 a.m. IST, after ending the previous session at 7.1600%.
“Since there is nothing much to track locally, government bonds are reacting point-to-point to any movement in US yields, and have risen as 10-year crossed 4%,” a trader with a primary dealership said.
US yields rose on Tuesday as investors expected an increase in government debt issuance and more signs of economic resilience, despite softening data.
The 10-year yield stayed above 4%, despite some pullback after Fitch Ratings downgraded the government’s credit rating to AA+ from AAA, citing fiscal deterioration over the next three years.
Market participants said the downgrade is unlikely to have any major impact across asset classes.
Indian bond yields have been rising recently as their US peers spiked amid expectations that rates will remain elevated for longer, even as the odds of a rate hike in September are just 16%.
Traders have also been nervous about a further increase in inflation in July, which could prompt the Reserve Bank of India (RBI) to take a hawkish stance in the monetary policy review on Aug. 10.
India’s retail inflation jumped to 4.81% in June, after easing for four months.
Economists estimate inflation topped 6% in July, breaching the upper end of the RBI’s medium-term target, at a time when the central bank is focusing to achieve a 4% target.
Traders also await debt supply on Friday, as New Delhi aims to raise at least 390 billion rupees ($4.73 billion) through a sale of bonds.
The RBI will auction treasury bills worth 240 billion rupees later on Wednesday.
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