Indian government bond yields are likely to advance on Friday with the supply of debt in the weekly auction and high U.S. yields having been sustained, a trader at a private bank said. Until the auction is over, the benchmark 10-year bond yield is likely to hover in the range of 6.81%-6.85% where it closed on Thursday at 6.8329%.
Tomorrow, it will auction bonds worth Rs 32,000 crore ($3.79 billion), out of which Rs 22,000 crore is the benchmark bond, under the so-called liquidity injection plan to shore up market liquidity and trading activity. But the heavy debt supply is likely to weigh on the yields. The trader noted that the possibility of short selling in the benchmark bond could intensify, with the yield potentially reaching the key level of 6.85%. Despite this, buying support is anticipated at that level.
Indian bond yields have been on a rising trajectory since the Reserve Bank of India made recent comments on inflationary concerns. On Wednesday, the RBI underlined rising inflation risks that have added to investor caution. Foreign investor sentiment also played its part with the withdrawal of over Rs 10,000 crore from domestic bonds in November alone.
Inflation in India rose to 6.21% in October, surpassing the RBI’s target range of 2% to 6% for the first time in 14 months. This has diminished expectations for a rate cut in December. The RBI attributed the surge in inflation to a sharp rise in food prices, alongside an increase in core inflation. The central bank cited further other early spillover effects from higher primary food prices, which include the rise in edible oil prices.
Another area influenced is the domestic bond market. U.S. Treasury yields have also been moved higher recently as expectations for a Federal Reserve rate cut next month ease. According to the CME FedWatch tool, traders now assign a 60% probability of a rate reduction in December, down from 72% the previous week.
