India bond yields inch higher ahead of debt sale

02 Sep, 2022

MUMBAI: Indian government bond yields were higher on Friday, tracking a surge in US Treasury yields, as the local market awaited fresh debt supply through a weekly auction.

The benchmark 10-year Indian government bond yield was at 7.2426% as of 0505 GMT.

The yield rose two basis points on Thursday to end at 7.2146%.

The new 10-year 7.26% 2032 bond yield was at 7.2238% after ending at 7.1859% on Thursday.

India is scheduled to raise at least 330 billion rupees ($4.14 billion) through the sale of bonds including 130 billion rupees of the 7.26% 2032 note, which is expected to replace the existing benchmark paper soon.

India bond yields flip down, as oil fall outweighs higher US yields

“Debt supply remains the major trigger for the day and if cutoffs are weak, we may see break of 7.25% for the benchmark,” a trader with a state-run bank said. Meanwhile, US Treasury yields persisted in upward momentum, with the 10-year yield nearly touching 3.30%, its highest level since Jun. 21, ahead of non-farm payrolls data due on Friday.

Investors are anticipating a strong job report, which could spur further aggressive monetary tightening by the US Federal Reserve. Interest rate futures imply a 75% chance of a 75 basis point rate hike this month.

The underlying sentiment, however, remains buoyant as investors expect progress in the inclusion of Indian bonds in global indexes, which could spur more foreign inflows.

India wants global bond index operators to consider local settlement of its government securities if they are included in the indexes, a government official said on Thursday.

Media reports last week said JPMorgan had started new consultations with investors about adding India to its emerging market index, rekindling expectations of an imminent listing of the country’s securities.

Traders also believe that the softer-than-expected economic growth reading will not deter the Reserve Bank of India from hiking policy rates, with some seeing risk of a larger quantum of hikes later this month.

ICICI Securities Primary Dealership has not ruled out the possibility of a 50-basis-point hike in repo rate as there is no large scope for the RBI to lower inflation forecasts, and the prospect of another round of 75 bps hike by the Fed may also force such a move.

Read Comments