India's key-tenor bonds may see relief after October-March supply cut

MUMBAI: Indian government bond yields are set to open higher on Monday, tracking a rise in US Treasury yields, although a reduction in October-March supply of liquid five-year and 10-year bonds may offer some relief after a steep selloff in recent weeks.

The benchmark 6.94% 2036 bond yield is expected to trade between 7.06% and 7.11% on Monday, according to a trader with a primary dealership, after ending at 7.1194% on Friday.

“Traders may take some solace in the mild reduction in five-year and 10-year bond supply, as these two segments were heavily battered in the last few sessions,” the trader said.

New Delhi plans to raise 7.86 trillion rupees ($82 billion) through bond sales between October and March, slightly below earlier projections.

The move takes full-year borrowing to 16 trillion rupees, down from the 16.09 trillion rupees projected after the first half and 17.20 trillion rupees outlined in the budget.

The share of five-year and 10-year bonds in the borrowing mix has been cut to 12.1% and 26.3%, respectively, from 15.4% and 29% in April-September.

The 10-year benchmark bond yield has jumped 36 bps in the last six weeks, while its shorter duration counterpart has surged 46 bps during the same period.

US Treasury yields stayed elevated, with the 10-year yield hovering around its highest level in nearly two decades, as recent data and comments from Federal Reserve officials reinforced bets on further rate hikes.

Traders now see a 64% chance of another rate increase in October and a 51% probability of a further move in December, according to CME Group’s FedWatch Tool.

The Fed raised rates earlier this month, for the first time since 2023.

Expectations of a rate hike by the Reserve Bank of India have strengthened after August retail inflation accelerated to 4.82% and following the US Fed’s latest move, with a majority now expecting an increase next week.