MUMBAI: Indian government bond yields are expected to be largely unchanged in early deals on Tuesday as the market braces for heavy state debt supply, although a central bank’s debt purchase should help sentiment.
The benchmark 10-year yield is likely to move between 6.68% and 6.71%, a trader with a private bank said, compared with its previous close of 6.6896%.
“It seems there is some improvement in demand at the longer-end since the last few days, and it would be interesting to see how it percolates to state debt cutoffs,” the trader said.
Indian states aim to raise 521.20 billion rupees ($6 billion) through the sale of bonds later in the day, and the quantum is higher by over 100 billion rupees than the pre-announced calendar.
The premium that states have to pay over the central government bond yields has risen to over a one-year high amid heavy supply from states at a time when central government debt auctions have stopped close to the fiscal year end.
Adding to the “crowding out effect” are corporate debt supplies from state-run firms as well as non-bank finance companies that are competing for investor attention.
Indian bond yields seen flat with RBI debt purchase, Fed meet in spotlight
Meanwhile, the Reserve Bank of India is set to buy bonds worth 500 billion rupees in the session, which traders believe will be the last such operation for this financial year.
Traders also await the Federal Reserve’s policy decision due after Indian market hours on Wednesday.
The Fed is expected to keep interest rates unchanged, but the focus would be on its guidance and updated dot plot. HSBC expects the Fed’s median projections for policy rates to be unchanged from December and expects rate cuts of 75 basis points in 2025.
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