MUMBAI: Indian government bond yields are expected to rise in early trades on Friday, ahead of a fresh supply of debt via the weekly auction, while the constant rise in oil prices as well as US yields will also weigh on sentiment.
The benchmark Indian 10-year government bond yield is seen in a 7.44%-7.50% band, a trader with a private bank said. The yield ended at 7.4538% on Thursday, recording its biggest one-day jump since Aug. 5.
“There is no bullish factor that could now support bonds, and the benchmark yield touching 7.50% today is highly possible,” the trader said.
“Though the index inclusion news is digested, rising oil prices pose a threat to inflation outlook.”
The government is slated to sell bonds worth 280 billion Indian rupees ($3.40 billion) later in the day, including 120 billion rupees of the benchmark 2032 paper.
The previous week’s central government auction, as well as this week’s state debt sale witnessed weaker-than-expected demand, which could be repeated at Friday’s auction as well.
Global oil prices rose on Friday, continuing an upward trend after the Organization of Petroleum Exporting Countries and allies, together known as OPEC+, agreed to tighten global supply with a deal to cut production targets by 2 million barrels per day.
Indian Bond yields climb on index inclusion push back, oil price rise
The cut is its largest reduction since 2020 and comes ahead of a European Union embargo on Russian oil. Rising oil prices hurt sentiment as India is one of the largest importers of the commodity and higher prices have a direct impact on inflation.
US Treasury yields rose ahead of September non-farm payrolls data due later in the day, while Federal Reserve officials have been consistent in recent comments that the central bank will take aggressive measures in hiking interest rates to combat rising inflation, raising concerns that could tilt the economy into a recession.
Indian government bonds remain on the radar for inclusion in J.P. Morgan’s emerging market local currency debt index after a review on Tuesday, the bank said, dashing hopes that Asia’s third largest economy would be added this year.