INDIA BONDS-Bond yields rise on elevated Jan-March state debt sale plan

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MUMBAI, Jan 2 (Reuters) – Indian government bond yields rose in the first trading session of 2023, with benchmark bond yields jumping to their highest level in nearly two months that the states announced a bigger loan schedule than expected for the March quarter.

The benchmark 10-year yield was at 7.3435% as of 10:00 am IST on Monday, after ending at 7.3277% on Friday.

It had hit 7.3534% earlier in the day, the highest since November 10.

Elevated borrowing by the state was pushing yields up, said a dealer with a primary dealership.

“Looking at the current scenario, the new trading range for the 10-year bond yield could shift upwards to 7.30%-7.40%.”

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 states plan to raise 3.41 trillion rupees ($41.28 billion) by selling bonds in 13 weekly auctions between January and March. The supply is well above market expectations of 2.70 trillion rupees to 3.00 trillion rupees.

States had borrowed 4.57 trillion rupees between April and December, less than the scheduled 6.55 trillion rupees, and a sudden increase in issuance could see crowding out in the last quarter of the financial year, traders said.

Trading activity is unlikely to pick up sharply in the next few sessions, after December saw the lowest average daily volume since March.

December retail inflation data, due next week, will act as the next key trigger, followed by the federal budget announcement in February, traders said.

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 -central bank chooses another increase in rates in February.

The Reserve Bank of India has raised the repo rate by 225 basis points in 2022 to 6.25% to combat inflationary pressures. ($1 = 82.6000 Indian rupees) (Reporting by Dharamraj Dhutia Editing by Nivedita Bhattacharjee)

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