Govt bond yields set to rise ahead of over $4 billion state debt sale

Indian government bond yields may open a tad higher on Tuesday, as traders brace for higher-than-expected supply from states later in the day, while US Treasury yields remained largely unchanged.
 

The benchmark 10-year yield is likely to move between 6.84 per cent and 6.87 per cent, compared with its previous close of 6.8509 per cent, a trader with a primary dealership said.
 

"With global factors going quite, focus will once again shift to demand-supply dynamics for the week, starting with state debt auction today followed by benchmark bond sale on Friday."
 

Indian states aim to raise Rs 36,250 crore ($4.32 billion) through sale of bonds later in the day, and the quantum is larger than the scheduled amount of Rs 29,400 crore, and also highest for this financial year.
 

New Delhi is likely to sell bonds worth 300 billion rupees on Friday, which includes the benchmark bond worth Rs 20,000 crore.
 

US yields were barely changed on Monday, after economic data signalled cooling in business spending, but moves were limited after yields had already dropped sharply last week.
 

"Short of a major recession or a risk-off, we are not convinced that 10-year and 30-year US yields should be meaningfully lower than where they are now," DBS said in a note.
 

Last week, US Federal Reserve Chair Jerome Powell delivered his strongest signal that interest rates will come down in September, saying further cooling in the job market would be unwelcome, while expressing confidence that inflation is within reach of Fed's 2 per cent target.
 

While a 25-basis-point cut in September is certain, the odds of a 50 bps move eased below 30 per cent after reaching 36 per cent on Monday.

For the year, the market is expecting rate cuts of 100 bps, according to CME FedWatch Tool.
 

The next major triggers for rate expectations would come from the US Personal Consumption Expenditure (PCE) data due this week and non-farm payrolls and unemployment data due late next week.