MUMBAI: Indian government bond yields are expected to rise at the start of the week, tracking the rise in US Treasury yields nearing a critical level, alongside states’ plans to borrow a record amount.
The benchmark 10-year yield is likely to drift in the 7.05%-7.09% range on Monday, following its previous close of 7.0644%, a trader with a private bank said.
“There is no respite from the constant rise in Treasury yields, and we could again see some upward push in local bond yields,” the trader said.
“The state debt supply is a shocker and even though, long-term investors would absorb, we could see some pressure on yields.”
US yields rose on all the five trading sessions last week, with the 10-year yield rising to its highest levels in three weeks, fuelled by indications of a robust economy and elevated inflationary pressures, raising concerns about fewer interest rate cuts by the Federal Reserve this year.
The 10-year yield jumped 22 basis points last week, marking its biggest such rise in five months, and was hovering around the critical level of 4.30%, a breach of which could provide strong upside.
Traders now await the Fed policy decision due on Wednesday, amid rising uncertainty about whether the US central bank would start rate cuts later than the widely-expected June timeframe, with chances of an updated dot plot showing only two cuts in 2024, instead of the previously expected three.
Relentless spike in US yields turns India bond traders more cautious
The odds for a rate cut in June have eased to 61% from 74% last week and 82% last month, according to the CME FedWatch tool.
Back home, Indian states are aiming to raise a record 502.06 billion rupees ($6.06 billion) through a sale of bonds on Tuesday, and the supply comes at a time, when many investors are completing their investment targets for the financial year.
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