Indian bond yields seen rising tracking US peers, debt supply key

Indian bond yields seen rising tracking US peers, debt supply key

Indian government bond yields are expected to rise in early session on Friday, tracking an upward move in U.S. yields, after inflation rose moderately in the world’s largest economy, while focus will now shift to the debt supply.

The benchmark 7.26% 2033 bond yield is likely to be in the 7.14%-7.18% range till the debt auction, after ending the previous session at 7.1524%, a trader with a state-run bank said.

“Major action would depend on auction demand and the cutoff of the new paper.”

New Delhi aims to raise 330 billion rupees ($3.99 billion) through the sale of bonds later in the day, which includes 140 billion rupees of a new 10-year paper.

The new paper will replace the existing benchmark in the coming weeks, but is unlikely to see a massive premium over the existing benchmark bond, traders said.

Bond yields eased on Thursday, after the Reserve Bank of India held its key lending rate steady at 6.50% for the third straight meeting, while undertaking temporary liquidity draining steps.

It raised the inflation forecast for the quarter as well as the year, but Governor Shaktikanta Das said that past trends indicate vegetable prices may see a significant correction after a few months.

Meanwhile, while retail inflation in U.S. rose marginally and has not materialised into major bets of another rate hike, chances are that the Fed may maintain higher rates for longer period, traders said.

Headline and core consumer prices both rose by 0.2% in July, for an annual gain of 3.2% and 4.7%, respectively, with the core inflation posting smallest increase in nearly two years. U.S. yields rose, with the 10-year yield rising above 4.10%.