Indian bond yields seen higher as 10-yr US yield hits fresh 16-year high

Indian bond yields seen higher as 10-yr US yield hits fresh 16-year high

Indian government bond yields are expected to trend higher at the start of the fiscal second half as U.S. yields continue their upmove, with the 10-year yield rising to fresh 16-year highs, weighing on sentiment.

The 10-year benchmark 7.18% 2033 bond yield is likely to be in the 7.20%-7.26% range on Tuesday, after ending at 7.2162% in the previous session, a trader with a private bank said.

“There may be a mild gap up at open as we are at the start of a new quarter, so traders may not be willing to show any major buying support,” the trader said.

U.S. yields jumped, with the 10-year yield hitting 4.70%, the first time since October 2007, as an agreement to avert a partial government shutdown reduced demand for the debt.

The U.S. Congress passed a stopgap funding bill late on Saturday with overwhelming Democratic support. The agreement takes away the risk that the release of government data will be delayed.

The rise may be capped as oil prices eased, with the benchmark Brent crude contract easing below $90 per barrel on a strengthening U.S. dollar and profit booking. It had risen above $97.50 per barrel last week, the highest in nearly a year.

Sentiment also remains supported as the inclusion of Indian bonds in JPMorgan’s emerging market debt index would open the door for foreign inflows. BNP Paribas Asset Management expects inflows of $20 billion in the next two years.

Meanwhile, India will borrow 6.55 trillion rupees ($78.70 billion) through bond issues in the October-March period and this includes a maximum of 1.45 trillion rupees through 10-year bonds, which is 22% of the overall borrowing.