Key level for India 10-year bond yield likely to be tested as debt supply looms

MUMBAI: Indian government bonds are expected to continue their losing run, with the 10-year benchmark bond yield close to an upside break of a key level, as market braces for fresh supply through the weekly debt auction on Friday.

The benchmark 10-year 6.48% 2035 bond yield is likely to be in the range of 6.63% to 6.67% till the debt auction, a trader with a private bank said.

It ended at 6.6498% on Wednesday. Bond yields move inversely to prices.

New Delhi will sell bonds worth 310 billion rupees ($3.43 billion), which include the liquid five-year paper and a new 50-year bond, that could test the appetite of long-term investors like insurance companies.

“Confidence is broken, and there is no strong trigger in sight that would propel buying. There are high chances that we see 6.65% to be taken out, but the move would be dependent on the cutoff yields for the five-year paper,” the trader said.

The bond market has been under pressure since Bloomberg Index Services deferred adding Indian bonds to its flagship Global Aggregate Index, disappointing investors who had viewed the inclusion as nearly certain.

The service provider said a number of respondents highlighted important operational and market-infrastructure considerations that merit further evaluation before inclusion. Additionally, market participants are disappointed after the Reserve Bank of India included a set of papers that are not actively traded for its open market operation next week, in which it is set to buy bonds worth 500 billion rupees.

The RBI has bought bonds worth 2.5 trillion rupees over the last one month, but these operations have not been able to push down yields sustainably.