Bond yields rise for second month; key central bank meetings in focus

By Dharamraj Dhutia

MUMBAI (Reuters) - Indian government bond yields clocked their second straight month of gains in October after ending higher on Monday, tracking similar move in U.S. yields, with traders cautious ahead of a few key central bank meetings this week.

The benchmark Indian 10-year government bond yield ended at 7.4454%, after closing at 7.4161% on Friday. The yield has risen five basis points (bps) this month, after jumping 21 bps in September.

"The benchmark bond yield is expected to be around 7.50% in the near term, and we expect (India's) central bank to hike repo rate by another 60 basis points over the medium term, to take the terminal rate to 6.50%," said Kunal Kundu, India economist at Societe Generale.

"However, any rate action on Thursday is highly unlikely," said Kundu, referring to the Reserve Bank of India's monetary policy committee meeting later this week.

Bond yields were volatile and traded in an 18-bps range in the month, which started with a confirmation of a delay in inclusion of Indian bonds in global indices.

The 10-year U.S. yield was at 4.07%, having risen 26 bps so far this month, after gaining 49 bps and 67 bps in August and September, respectively, on continued expectations of aggressive rate hikes from the Federal Reserve.

The Fed's policy decision is due on Wednesday, with broad expectations of another 75-bps rate hike, while future guidance and commentary will be key. The Fed has raised rates by 300 bps since March, including three back-to-back 75-bps hikes.

Traders will also await the outcome of the RBI's meeting on Thursday, which, Reuters reported, was most likely to discuss the central bank's response to the government after failing to meet its inflation target for three quarters in a row.

India's retail inflation stood at 7.41% in September, higher than the 2%-6% target zone for the ninth straight month.

In the coming month, the market will remain focused on inflation data apart from weekly debt auctions, as well as the moves in global oil prices and U.S. yields.

 

(Reporting by Dharamraj Lalit Dhutia; Editing by Savio D'Souza)