MUMBAI: Indian government bond yields were marginally lower in the early session on Tuesday, as the government’s announcement of a new 10-year bond aided sentiment, while the major focus was on the Reserve Bank of India’s monetary policy decision.
The benchmark 7.26% 2033 bond yield was at 7.1804% as of 10:00 a.m. IST, after ending the previous session at 7.1981%.
The government will sell bonds worth 330 billion rupees on Friday, including 140 billion rupees worth of a new 10-year paper, which will replace the existing benchmark paper in the coming weeks.
“There is some bias for buying as the new 10-year bond has been announced, but after the initial effect, we may see benchmark back to trade around 7.20% levels, as fears of a hawkish central bank are dominating the trading space,” a trader with a private bank said.
The RBI will hold its key interest rate at 6.50% through end-March 2024, according to a Reuters poll of economists, who have pushed back their expectations for the first rate cut to the second quarter of 2024 from the first quarter in a June survey.
India bond yields may move upwards before debt supply, US peers hurt
Even as there are no concerns about a rate change, most market participants are fearing hawkish guidance, which is negating the possibility of any large fall in bond yields till the decision, traders said.
Retail inflation in June rose 4.81%, snapping a four-month downward trend, and economists are forecasting readings for July and August to stay in the 6.5%-7.0% range, way above the RBI’s upper tolerance limit.
The 10-year US yield has remained above 4% mark, with traders awaiting the July inflation print due on Thursday for cues on interest rate trajectory.
The Federal Reserve has raised rates by 525 basis points since March 2022, while the odds of a September hike stand around 14%.
Five Indian states aim to raise 52.50 billion rupees through the sale of bonds later in the day.
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