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MUMBAI: Indian government bond yields jumped sharply, with the 10-year benchmark bond yield seeing its biggest surge in eight months, as early voting trends showed that Prime Minister Narendra Modi’s National Democratic Alliance (NDA) was leading, but the victory margin was unclear.

India’s benchmark 10-year yield was at 7.0130% as of 10:00 a.m. IST, following its previous close at 6.9438%.

Earlier in the day, the yield hit 7.0375%, the highest in nearly two weeks, and also witnessed its biggest single-session climb since Oct. 6.

“Markets had clearly not factored in such a scenario, which is leading to strong upward moves in yields, and the election-led uncertainty is expected to persist, till we start seeing some clear victories for the incumbent government,” a trader with a state-run bank said.

Early trends according to TV channels showed the ruling NDA is unlikely to win a decisive majority as predicted by the exit polls over the weekend.

India’s exit polls, which are conducted by polling agencies, have a patchy record as they have often got the outcome wrong.

Traders further said that if the government manages to scrape through with not a strong mandate, the fiscal consolidation trajectory may be impacted and even the active foreign flows may take some breather, with only passive flows coming in as Indian bonds get included in JPMorgan’s debt index by end of this month.

India bonds not reacting to strong domestic growth, yields little changed

Siddharth Kothari, an economist at Sunidhi Securities & Finance, said he expects the benchmark bond yield to be in a 6.95%-7.05% range till the Reserve Bank of India’s monetary policy decision on Friday.

The central bank is expected to maintain a status quo on policy rates and stance, but commentary on inflation and liquidity management would be the key.

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