India bond yields seen rising ahead of debt supply, US yields stay high

Indian government bond yields are expected to rise on Friday ahead of a fresh supply of debt through the weekly auction, while US yields continue to remain elevated. 

The benchmark 10-year bond yield is likely to move between 6.81 per cent and 6.85 per cent till the completion of the auction, compared with its previous close of 6.8329 per cent on Thursday, according to a trader with a private bank. 

New Delhi will sell Rs 32,000 crore ($3.79 billion) of bonds on Friday, including Rs 22,000 crore of the benchmark bond, which will help increase liquidity and trading in this paper. 

 

"There could be some short selling in the benchmark bond as we have huge supply lined up, and that will put further upward pressure on yields," the trader said. 

"Benchmark bond yield could hit key level of 6.85 per cent, but should see buying support at that level," the trader added. 

Bond yields have risen since the Reserve Bank of India (RBI) once again highlighted inflation concerns on Wednesday, while selling by foreign investors, who have taken out over Rs 10,000 crore from domestic bonds in November, is also emerging as a pain point. 

The RBI said that apart from a sharp surge in the momentum of food prices, core inflation has also edged up, which is a worrying factor. It added that there are early signs of spillovers of high primary food prices following a surge in the prices of edible oil. 

India's inflation accelerated to 6.21 per cent in October, breaching the RBI's target range of 2 per cent-6 per cent for the first time in 14 months and dashing hopes for a December rate cut. 

Indian bond yields have also followed US Treasury yields higher recently on easing bets for a Federal Reserve rate cut next month. 

Traders now see a 60 per cent chance of a US rate reduction in December, down from 72 per cent last week, according to the CME FedWatch tool.

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