MUMBAI: Indian government bond yields rose on Tuesday as a spike in Treasury yields and a shift in the domestic debt auction methodology weighed on sentiment in the first trading session for debt markets in the new financial year.
However, the rise was capped by the government’s plan to auction a new 10-year bond on Friday, which will replace the existing benchmark soon.
The yield on the existing benchmark 10-year was at 7.0835% as of 10:00 a.m. IST on Tuesday, following its close of 7.0556% on Thursday.
The markets were shut on Friday and Monday.
“The immediate trigger is the jump in US yields as that could have a long-standing impact on overall yield scenario,” a trader with a state-run bank said.
US yields rose on Monday as stronger-than-expected manufacturing data raised doubts about whether the Federal Reserve could cut interest rates thrice this year.
The 10-year US yield was above 4.30%, with the odds of a rate cut in June easing to 59% from over 70% last week, according to the CME FedWatch tool.
Back home, the government will auction new 10-year bonds worth 200 billion rupees ($2.40 billion) on Friday to kickstart its borrowing programme for this financial year.
India bonds not reacting to strong domestic growth, yields little changed
However, the Reserve Bank of India’s move to switch to multiple price-based method for all debt auctions dampened sentiment.
“The shift to multiple prices is good for the overall market but it will make investors cautious, especially bidding for on-the-run liquid notes with a larger issue size,” a trader with a primary dealership said.
New Delhi aims to borrow 7.50 trillion rupees through bond sales during April-September, which is 53% of its full-year target of 14.13 trillion rupees, and the quantum is lower than estimated by traders.
Traders also await the central bank’s monetary policy decision on Friday, with expectations it will maintain status quo.
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