Indian bonds to tread water ahead of debt supply

MUMBAI: Indian government bonds are set to be largely steady in early deals on Friday, with traders staying cautious ahead of a hefty debt auction as persistent supply pressures continue to weigh on sentiment.

The benchmark 6.48% 2035 bond yield may hover between 6.65% and 6.70%, a trader with a private bank said.

The yield rose nearly 2 basis points to 6.6780% on Wednesday, after falling for six sessions.

Bond yields move inversely to prices.

The debt market was shut on Thursday for a local holiday.

New Delhi is set to borrow 330 billion rupees ($3.62 billion) from the bond market through a sale of securities maturing in four to nearly 30 years.

“The auction will likely see weak demand as traders may hold back from buying before next week’s bond switch,” a private-bank trader said. India will buy back bonds worth 250 billion rupees maturing in fiscal 2027 and sell longer duration papers to the market in a switch operation on Monday.

This follows New Delhi’s bond switch with the central bank last week for 755 billion rupees, which lowered the gross borrowing to 16.45 trillion rupees from 17.20 trillion rupees for fiscal 2026-27.

However, the switch operations will add to the market’s supply of longer-maturity papers, increasing uncertainty around long-end yields, traders said, as they flagged concerns over the rising duration of supply.

Traders also highlighted geopolitical risks after President Donald Trump issued fresh warnings to Iran on Thursday to make a deal over its nuclear program, prompting a threat from Tehran to retaliate against US bases in the region if attacked.

A massive US military buildup in the Middle East has heightened fears of a wider war, keeping global markets on edge, traders said.