MUMBAI: Indian government bond yields are expected to be largely unchanged early on Friday, as the impact of a marginal dip in US peers is expected to be offset by traders bracing for fresh supply of debt.
The benchmark 7.26% 2033 bond yield is likely to be in the 7.23%-7.27% range till the debt auction, after ending the previous session at 7.2487%, its highest since April 5, a trader with a primary dealership bank said.
“There is some respite on the Treasury front as the 10-year yield has eased slightly, but that would not lead to any major fall in local yields, as market will have to absorb fresh supply which has become a pain point in last few days” the trader said.
US yields eased in Asian trading hours after rising relentlessly over the past few sessions on rising bets that the Federal Reserve will hold interest rates higher for longer.
The Fed has raised 525 basis points since March 2022 to 5.25%-5.50% range, with the probability of another hike in September now at around 14%.
Market sentiment also dampened after retail inflation in July spiked to 7.44% from 4.87% in the previous month, and the July figure was the highest since April 2022, breaching the upper end of the central bank’s inflation band of 2%-6% for the first time in five months.
Still, the risk of stagflation remains low in India despite a sharp uptick in prices, the Reserve Bank of India said in its August bulletin on Thursday.
New Delhi aims to raise 310 billion rupees ($3.73 billion) through sale of bonds later in the day, and the auction includes liquid 14-year bond. Previous few auctions have resulted in higher-than-expected yields indicating weak demand.
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