MUMBAI: Indian government bond yields are expected to move slightly higher at the start of this week on Monday, which is likely to see rangebound moves amid lack of any major triggers as well as scheduled events.
Still, any major rise in yield can be ruled out amid value purchases, as there is no supply through the weekly central government debt auction this week.
The benchmark 10-year bond yield is likely to move between 6.82% and 6.87%, compared with its previous close of 6.8495%, a trader with a private bank said.
“Due to its safe-haven demand, U.S. yield have touched fresh highs, and this is all the more negative for Indian bonds, that were clearly struggling last week. However, it would be interesting to see how long can the 10-year bond yield could stay above 6.85%,” the trader said.
U.S. yields were higher in Asian hours, as demand increased amid rising geopolitical tensions in the Middle East as direct confrontation between Israel and Iran risks spiralling into a regional conflagration.
India bond yields rise after debt supply, close higher for week
The 10-year U.S. yield broke the key level of 4.25%, and was around highest level in more than three months. Interest rate futures continue to indicate 94% probability that the Federal Reserve will cut rates by 25 basis points next month.
Israel Prime Minister Benjamin Netanyahu said on Sunday that the airstrikes “hit hard” Iran’s defences, but Iranian Supreme Leader Ayatollah Ali Khamenei said the damage from Saturday’s attack should not be exaggerated.
As a result, oil prices eased in Asian hours on Monday, which could also aid bond investors’ sentiment as India is one of the largest importers of crude and the price moves have a direct impact on local retail inflation.
Back home, the market remains divided over the Reserve Bank of India’s next policy move, especially after minutes of the recent meeting showed members were cautious and said India cannot risk another bout of inflation and the monetary policy committee must adopt a cautious approach to cutting rates.