MUMBAI: Indian government bond yields are expected to trade largely unchanged at the start of another holiday-truncated week as traders continue to await fresh triggers, while a debt switch will increase the supply of longer duration securities.
The benchmark 10-year bond yield is likely to move between 6.80% and 6.85%, compared with the previous close of 6.8294%, according to a trader with a state-run bank.
Indian markets are shut on Wednesday for elections in a local state.
Later in the day, India aims to switch bonds worth up to 200 billion rupees ($2.37 billion) while issuing longer duration bonds and buying back shorter dated securities.
“The last few switch auctions had seen decent responses, but we are not sure now as appetite for long-end has taken a hit over last few days,” the trader said.
“This week is expected to be a quiet one as we do not have any major events or data scheduled.”
Meanwhile, US Treasury yields edged higher on Friday and remained elevated during Asian hours as strong US retail sales data and import prices have lowered bets of an interest rate cut by the Federal Reserve next month.
The odds of a Fed rate reduction in December had risen after last week’s inflation reading was in line with estimates. However, traders now see a 62% chance of a Fed rate cut next month, down from 83% last week, according to the CME FedWatch tool.
Locally, consumer price inflation accelerated to 6.21% in October, breaching the Reserve Bank of India’s target range for the first time in 14 months and dashing hopes for an interest rate cut next month.
India bond yields may inch up tracking US peers
The Reserve Bank of India aims to keep inflation in a range of 2%-6%, with a medium-term goal of 4%.
Still, traders said that any a big rise in local yields can be ruled out as borrowing by Indian states continues to undershoot the schedule, providing comfort to investors in terms of demand-supply dynamics.
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