Indian bond yields expected to rise ahead of debt auction, US yields impact

Indian government bond yields are expected to move marginally higher, tracking a rise in US yields, while domestic market participants awaited fresh supply through a weekly debt auction.

The benchmark 10-year bond yield is likely to move between 6.77 per cent and 6.80 per cent, till the debt auction, compared with its previous close of 6.7810 per cent, a trader with a private bank said.

"US data are leading to an oscillation between expectations regarding aggressive and benign rate cutting cycle, and after the latest round, we have seen 10-year yield touching 4.10 per cent," the trader said.

The 10-year US Treasury yield rose on Thursday after data pointed that the world's largest economy was on a solid footing, further easing market expectations about an aggressive rate cutting cycle by the Federal Reserve.

Data showed US retail sales rose 0.4 per cent last month, above the 0.3 per cent estimate of economists polled by Reuters, and after an unrevised 0.1 per cent gain in August.

Interest rate futures are indicating a rate cut of 25 basis points by the Fed in November, with a 90 per cent probability, while expecting 43 bps of cuts in 2024.

New Delhi will sell bonds worth 330 billion rupees ($3.93 billion) later in the day, which includes the liquid 15-year bond.

On the positive side, the successful debt buyback from the government will aid, as it has extinguished debt worth around 494 billion rupees in the last two weeks.

The benchmark Brent crude continued to remain below $75 per barrel, which could aid sentiment as India is one of the largest oil importers and easing prices of crude could reduce inflationary pressures.

The retail inflation accelerated to a nine-month high of 5.49 per cent in September due to higher food prices, up from 3.65 per cent in August, and the jump prompted several economists to push back interest rate cut bets to the first half of 2025 from December.

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