MUMBAI: Indian government bond yields traded largely unchanged in the early session on Wednesday, while markets focus on the first sale of Treasury bills after the central bank’s currency withdrawal plan last week.
The 10-year benchmark 7.26% 2033 bond yield was trading at 7.0175% as of 10:00 a.m. IST, after closing at 7.0144% in the previous session.
“The benchmark yield should consolidate around the 7% mark for the next couple of days, but traders would be more keen to check the cutoffs for T-bills after the recent rally in the ultra-short end,” a trader with a state-run bank said.
The Reserve Bank of India will auction 320 billion rupees ($3.91 billion) of T-bills later in the day.
This is the first auction of these notes after the central bank announced that the country’s largest denomination note will be withdrawn from circulation by September-end.
Traders anticipate this move will result in an increase in banking system liquidity and lead to a fall in shorter tenor yields.
T-bill yields in the secondary market fell by around 15 basis points (bps) on Monday, while the up to three-year bonds had declined by around 10 bps.
The ultra-short-end of the government bond yield curve looks attractive amid a liquidity deluge following the central bank’s withdrawal of the 2,000-rupee currency note from circulation, said Akhil Mittal, senior fund manager at Tata Asset Management.
Meanwhile, US yields eased marginally on Wednesday, but remained around the 3.70% mark as traders monitored the progress of the US debt ceiling talks.
Indian bond yields inch higher, 10-year hits 7% tracking US peers
Yields have also been rising as several Federal Reserve officials have struck a hawkish tone in their comments towards inflation and interest rates, leading traders to price in a higher chance of a rate hike in June.
The odds of a 25 bps hike next month have now risen to 30%, against nearly 5% at the start of May.
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