Bond Market: Indian Bond Yields Rise Slightly Ahead of Debt Sale

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Yields on Indian government bonds were higher on Friday, following a surge in US Treasury yields, as the local market awaited a fresh supply of debt via a weekly auction.

The benchmark 10-year Indian government bond yield was 7.2426% at 0505 GMT. The yield rose two basis points on Thursday to end at 7.2146%. The new 7.26% 2032 10-year bond yield was 7.2238% after ending at 7.1859% on Thursday.

India is expected to raise at least 330 billion rupees ($4.14 billion) through bond sales, including 130 billion rupees of the 7.26% 2032 note, which is expected to soon replace the existing benchmark paper .

“Debt supply remains the main trigger for the day and if the thresholds are low, we could see a breakout of 7.25% for the benchmark,” said a trader at a public bank.

Meanwhile, US Treasury yields continued their upward momentum, with the 10-year yield touching almost 3.30%, its highest level since June 21, ahead of nonfarm payrolls data due Friday.

Investors are expecting a strong jobs report, which could prompt further aggressive monetary tightening from the US Federal Reserve. Interest rate futures imply a 75% chance of a 75 basis point rate hike this month.

Underlying sentiment remains buoyant, however, as investors expect progress in including Indian bonds in global indices, which could further boost foreign inflows.

India wants operators of global bond indices to consider local settlement of its government securities if they are included in indices, a government official said on Thursday.

Media reported last week that JPMorgan had begun further consultations with investors on adding India to its emerging markets index, rekindling expectations of an imminent listing of the country’s securities.

Traders also believe weaker than expected economic growth will not deter the Reserve Bank of India from raising policy rates, with some seeing the risk of more hikes later this month.

The main dealer did not rule out the possibility of a 50 basis point hike in the repo rate as there is not much room for the RBI to lower the inflation forecast, and the prospect of another 75 basis point hike by the Fed could also force such a move.

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