India bond yields unchanged, set to end flat; traders eye weekly debt sale

 

Indian government bond yields were largely unchanged on Friday and were set to end the week flat amid a lack of strong directional triggers, while the focus was on the fresh debt supply through a weekly auction. 

The benchmark 10-year bond yield was at 6.8251 per cent as of 10:00 am IST, compared with its previous close of 6.8204 per cent. 

New Delhi aims to raise Rs 32,000 crore ($3.81 billion), which includes Rs 22,000 crore of the new 6.79 per cent 2034 bond that will replace the existing benchmark note soon. 

"The entire week has passed by without providing any strong cues, and if the demand at auction indicates weakness, we could see a test of 6.85 per cent one more time before the end of the day," a trader with a state-run bank said. 

Bond yields have not moved either side much, as the rise in US yields was offset by favourable demand-supply dynamics. 

The 10-year US yield stayed around the 4.20 per cent mark as traders braced for a less aggressive Federal Reserve rate cut path and the outcome of the US presidential election on Nov 5. 

Interest rate futures indicate a 95 per cent probability that the Fed will cut rates by 25 bps next month. 

Meanwhile, market participants remained divided over the Reserve Bank of India's next policy move, especially after the minutes of the recent meeting showed most members were focused on inflation management. 

India cannot risk another bout of inflation and the monetary policy committee (MPC) must adopt a cautious approach to lowering interest rates, members said in the minutes. 

The MPC had kept the repo rate unchanged at 6.50 per cent, while changing its policy stance to 'neutral'. 

Barclays, Bank of America and STCI Primary Dealer anticipate rate cuts in December, while IDFC First Bank expects a cut in February. 

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