MUMBAI: Indian government bond yields are expected to open largely unchanged on Tuesday after the benchmark was unable to break the 7% handle convincingly in the previous session, indicating strong resistance around that zone.
The 10-year benchmark 7.26% 2033 bond yield is expected to be in the 6.98%-7.04% range, a trader with a primary dealership said, after closing at 7.0062% in the previous session.
“Since the benchmark was unable to break the 7% mark, even after the inflation fall, it should consolidate around current levels and wait for the next set of triggers,” the trader said.
India’s consumer price inflation eased to an 18-month low of 4.7% in April, from 5.66% in the previous month, lower than Reuters’ forecast of 4.80% and staying below the central bank’s upper tolerance limit for the second consecutive month.
Headline retail inflation in May is likely to fall further towards 4%, a level last seen in January 2021, according to some economists, who expect lower food prices to aid the decline.
The Reserve Bank of India (RBI) targets inflation at 4%, with a tolerance level stretching to two percentage points on either side.
The RBI, in April, had surprised the market with a status quo on rates, against the market expectations of a 25-basis point hike.
India bond yields edge up as higher US yields outweigh local inflation cheer
“Continuing moderation in inflation, aided by impact of past policy actions and high base effect, is a source of comfort for the bond markets… In the near term, we expect 10-year government bond to remain around 7%,” said Churchil Bhatt, executive vice president and debt fund manager at Kotak Mahindra Life Insurance Company.
Meanwhile, the two-year and 10-year US yields remained around the 4%-3.50% mark with the major focus on the Federal Reserve’s interest rate trajectory in the coming months.
Market focus will also remain on the weekly debt auction due on Friday, in which New Delhi aims to raise 330 billion rupees ($4.04 billion) via the sale of bonds, including 140 billion rupees of benchmark paper.