Fresh debt sale set to rattle Indian bonds as rate-hike jitters persist
- The benchmark 6.94% 2036 bond yield may trade between 7.38% and 7.42%
Indian government bonds face selling pressure ahead of fresh supply and due to caution over the central bank's interest-rate outlook amid rising inflation and tighter liquidity.
- Fresh government bond supply and market outlook.
- Rising inflation and central bank's interest rate outlook.
- RBI's tighter cash reserve ratio rules.
MUMBAI: Indian government bonds are likely to face selling pressure ahead of fresh supply through the weekly auction on Friday, adding to prevailing caution over the local central bank’s interest-rate outlook.
The benchmark 6.94% 2036 bond yield may trade between 7.38% and 7.42%, according to a trader at a primary dealership, after closing at 7.3921% in the previous session. Bond yields rise when prices fall.
New Delhi will sell 340 billion rupees ($3.58 billion) of the benchmark paper later in the day, taking the total issuance size of the security to 2.38 trillion rupees.
“Market is already under heavy bearish grip, and we could see the cutoff yield rising to the north of 7.40% levels,” the trader said. India’s September consumer inflation accelerated to 5.54%, set to cross the 6% upper end of the central bank’s tolerance band in October, according to a majority of economists.
Reserve Bank of India Governor Sanjay Malhotra said in a media interview on Tuesday that while the central bank does not generally use monetary policy to safeguard financial stability, the two cannot be fully separated.
Elevated inflation and the RBI’s increased focus on currency stability has ramped up bets on a larger-sized December rate hike, pushing up short-term bond yields and overnight indexed swap rates.
To add to the woes, the central bank’s tighter rules on daily maintenance of cash reserve ratio come into effect from Friday and could put more pressure especially on the shorter end.