India bonds dip before debt sale, domestic CPI data

MUMBAI: Indian government bonds weakened in early Friday trade, with sentiment under strain ahead of a heavy debt supply and India’s inflation print.

The benchmark 10-year yield was at 6.5917% as of 10:00 a.m. IST, after settling at 6.5832% on Thursday.

Bond yields rise when prices fall.

New Delhi will raise 280 billion rupees ($3.10 billion) through a sale of 15-year and 40-year bonds later in the day.

“The market will take its cues from the auction cut-offs, and we could see some demand from traders who sold into the central bank’s bond purchases on Thursday,” a trader at a primary dealership said.

The Reserve Bank of India bought 500 billion rupees ($5.53 billion) of bonds on Thursday at higher-than-expected cutoff prices, lifting secondary-market prices.

The central bank’s bond buying this financial year has reached a record high, with another 500 billion rupees of purchases scheduled for Thursday.

Sentiment stayed weak early Friday as traders braced for heavy debt supply and the rupee slumped to another record low.

The rupee weakened to 90.5175 per dollar, pressured by the lack of progress on a U.S. trade deal and the prospect of portfolio outflows. Investors are also awaiting November’s domestic inflation print due later in the day.

Retail inflation likely rose modestly in November after sliding to multi-year lows in October, according to a Reuters poll of economists.

The 10-year yield has risen about 10 basis points this week, tracking a sharp move higher in overnight index swaps and trimming rate-cut bets. Further direction hinges on the debt sale outcome, traders said.