MUMBAI: Indian government bond yields edged higher early in the session on Tuesday, as traders braced for higher-than-expected debt supply from states later in the day, while US Treasury yields remained muted.
The benchmark 10-year yield was at 6.8559% as of 10:00 a.m. IST, compared with its previous close of 6.8509%.
“Heavy supply by states is definitely going to test investor appetite today, and weak cutoffs could see benchmark bond yield touch 6.87%-6.88% levels,” a trader with a state-run bank said.
Indian states aim to raise 362.50 billion rupees ($4.32 billion) - the highest for the current financial year - through the sale of bonds, and the quantum is larger than the scheduled amount of 294 billion rupees.
New Delhi will sell bonds worth 300 billion rupees on Friday, which includes the benchmark bond worth 200 billion rupees.
Separately, state-run companies and banks are also set to raise over 140 billion rupees during the course of the week. Following last week’s plunge, the 10-year US yield remained around the 3.80% mark, even as economic data signalled a cooling in business spending.
India bonds not reacting to strong domestic growth, yields little changed
Last Friday, US Federal Reserve Chair Jerome Powell delivered his strongest signal that interest rates will come down in September.
Powell said further cooling in the job market would be unwelcome and expressed confidence that inflation is within reach of the Fed’s 2% target.
The market has completely factored in a 25-basis-point cut in September, while the odds of a 50 bps move eased below 30%. For the year, the market is expecting rate cuts of 100 bps, according to CME FedWatch Tool.
The next major triggers for Fed rate expectations would come from the US personal consumption expenditure (PCE) data due this week and non-farm payrolls and unemployment data scheduled for next week.
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