Indian bond yields flattish before state debt auction

MUMBAI: Indian government bond yields were largely unchanged after moving higher in early session on Tuesday as traders brace for a record supply of debt from states, while elevated US Treasury yields continued to hurt sentiment.

The benchmark 10-year yield was at 7.0812%, as of 10:05 a.m. IST, following its previous close of 7.0871%.

Earlier in the day, the yield rose to 7.0981%, highest since February 20. “State debt auction cutoffs hold the key for now,” a trader with a private bank said.

“Having said that any move toward 4.35% in 10-year US yields, could push local bond yields further up.”

Indian states aim to raise a record 502.06 billion rupees ($6.05 billion) through the sale of bonds later in the day, with the supply around 80% higher than the scheduled amount.

The auction comes at a time when many investors are closing their investment targets for the financial year, and may lead to an upward pressure on the yield curve, traders said.

US bond yields continue to remain elevated, with the 10-year yield posting its sixth straight rise on Monday as traders worry about the timing and extent of interest rate cuts from the Federal Reserve.

The 10-year US yield has gained 25 basis points over the past six sessions, while the Fed’s policy decision is due on Wednesday.

Traders will keep a close eye on guidance related to the Fed’s interest rate path as well as the updated “dot plot” projection of rates, at a time when indications of a robust economy and elevated inflationary pressures have led to worries about fewer rate cuts this year.

The Fed has showcased it expects three rate cuts in 2024 at the end of its December meeting, and some traders fear it falling to two.

Rising US yields, record state debt sale to nudge Indian bond yields up

Meanwhile, the Indian bond market was not reacting to the Bank of Japan ending eight years of negative interest rates and other remnants of its unorthodox policy, making a historic shift away from a focus of reflating growth with decades of massive monetary stimulus.