INDIA BONDS-Bond yields likely to rise on elevated Q4 state debt supply

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MUMBAI, Jan 2 (Reuters) – Indian government bond yields are expected to rise on Monday, the first trading session of 2023, as states announced a larger borrowing schedule than expected for the January-March quarter.

The benchmark 10-year yield is likely to move in a range of 7.32%-7.37%, said a trader with a private bank. The yield ended at 7.3277% on Friday.

The yield fell for a second straight quarter in October-December, but jumped 87 basis points in 2022, the biggest such move since 2009.

Indian sovereigns plan to raise 3.41 trillion rupees ($41.22 billion) by selling bonds in 13 weekly auctions between January and March, well above market expectations of 2.70 trillion rupees to 3.00 trillion rupees .

“There were great expectations of a loan calendar coming from the state on the higher side, but the current plans took many of us by surprise, and there should be some reaction in the open,” said the businessman.

The rise in government bond yields has largely remained limited as states borrowed far less than planned in the first three quarters of the financial year.

States borrowed 4.57 trillion rupees between April and December, less than the scheduled 6.55 trillion rupees.

Bond yields remained largely range-bound in thin volumes over the past two weeks as most participants remained on the sidelines ahead of the end of the quarter and the year calendar.

Trading activity is expected to pick up slowly, with the next key triggers being domestic inflation data due next week and the federal budget, likely due on 1 ‘ February.

Inflation fell below 6% in November for the first time in eleven months but core inflation continued to remain above 6%, which, market participants expect, could force the -central bank chooses another increase in rates in February.

“Core inflation has been stuck at elevated levels and inflation has been widespread, meaning more than half of the inflation index’s constituents are contributing to high inflation,” said Anand Nevatia, fund manager with Trust Mutual Fund.

“Therefore it will take time for inflation to slow down and stay within the central bank’s target band on a sustainable basis.”

KEY INDICATORS:

** Brent crude futures at $85.90 a barrel, up 10.5% in 2022

** The 10-year US Treasury yield was at 3.8310% and the 2-year note at 4.4030%

($1 = 82.7170 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Savio D’Souza)

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