MUMBAI: Indian government bond yields are expected to trend marginally higher in early deals on Friday, as market participants await fresh supply of debt through a weekly auction which includes the benchmark paper.
The 10-year bond yield is likely to move between 6.72% and 6.75% till the debt auction, a trader with a private bank said, compared with the previous close of 6.7341%.
New Delhi aims to raise 320 billion rupees ($3.70 billion) through sale of bonds later in the day, which will include benchmark bond worth 220 billion rupees.
“For the day, focus would remain on the demand at the auction, as this would be the last auction of the benchmark bond before federal budget announcement,” the trader said.
“The downside in yields may be capped for now, as US Treasury yields have also started inching higher again.”
The benchmark bond yield had eased for three consecutive sessions through Wednesday, but the decline was halted on Thursday, as US Treasury yields have come off their lows and the 10-year yield was around 4.63%, 10 basis points above the low it had hit on Tuesday.
US yields have been moving upwards as investors continued to sell government debt amid continued policy uncertainty from the new administration, especially on tariffs.
India bond yields rise in lead up to domestic inflation data
Tariffs are a crucial issue for the bond market because of their inflationary implications, which could also influence the Federal Reserve’s decision to cut interest rates in 2025. US rate futures have now priced in around 38 basis points of interest rate cuts in 2025.
Meanwhile, India’s federal budget announcement due on Feb. 1 will be the next major trigger for bond yields, with a major focus on fiscal deficit target and borrowing numbers.
Market participants expect the government to announce a fiscal deficit target of around 4.4%-4.5% of gross domestic product for the next financial year, with gross borrowing in the range of 14 trillion rupees to 14.50 trillion rupees.
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