India bonds on tight rope ahead of state debt sale, Fed policy

MUMBAI: Indian government bonds traded in a narrow range early Tuesday, as investors geared up for a weekly state debt sale and upcoming Federal Reserve policy decision.

The yield on the 10-year benchmark note was at 6.4939% at 10:00 a.m. IST.

It closed at 6.4963% on Monday. Bond yields move inversely to prices.

Indian states are set to raise 184 billion rupees ($2.09 billion) through the sale of bonds later in the day, lower than the previously scheduled 236 billion rupees.

Earlier this month, Reuters reported that Indian lenders suggested a switch to uniform pricing method for state bond auctions to the Reserve Bank of India to prevent sharp spikes in cutoff yields seen in recent sales.

In a multiple price auction, buyers are allotted bonds at the price they bid, while in uniform pricing all successful bidders pay the cutoff price.

“Spreads have been widening consistently so there is some caution,” a trader at a private bank said, adding that today’s auction should still go through smoothly.

Traders are staying put before the Fed’s rate decision, due after market hours on Wednesday, where a 25-basis-point rate cut is already priced in, with a thin probability of a 50-bps move.

More than the decision, investors will gauge Fed Chair Jerome Powell’s commentary for cues on further rate easing, traders said.

A Bloomberg News report that said JPMorgan will cut India’s weightage in its emerging market bond index by 100 basis points to 9% from next year had little bearing on the market on Tuesday, but will likely weigh on sentiment, traders said.