Indian government bonds are
likely to face selling pressure ahead of fresh supply through
the weekly auction on Friday, adding to prevailing caution over
the local central bank’s interest-rate outlook.
The benchmark 6.94 per cent 2036 bond yield may trade
between 7.38 per cent and 7.42 per cent, according to a trader at a primary
dealership, after closing at 7.3921 per cent in the previous session.
Bond yields rise when prices fall.
New Delhi will sell ₹34,000 crore ($3.58 billion) of
the benchmark paper later in the day, taking the total issuance
size of the security to ₹2.38 lakh crore.
“Market is already under heavy bearish grip, and we could
see the cutoff yield rising to the north of 7.40 per cent levels,” the
trader said.
India’s September consumer inflation accelerated to 5.54 per cent,
set to cross the 6 per cent upper end of the central bank’s tolerance
band in October, according to a majority of economists.
Reserve Bank of India Governor Sanjay Malhotra said in a
media interview on Tuesday that while the central bank does not
generally use monetary policy to safeguard financial stability,
the two cannot be fully separated.
Elevated inflation and the RBI’s increased focus on currency
stability has ramped up bets on a larger-sized December rate
hike, pushing up short-term bond yields and overnight indexed
swap rates.
To add to the woes, the central bank’s tighter rules on
daily maintenance of cash reserve ratio come into effect from
Friday and could put more pressure especially on the shorter
end.
RATES
India’s overnight indexed swap (OIS) rates may witness a
further paying pressure as bets of aggressive rate hikes
continue to strengthen.
The one-year OIS rate rose 10.50 bps to
6.5450 per cent, while the two-year rate gained 4.5
bps to 6.64 per cent, and the five-year rate settled
at 6.7825 per cent.
($1 = 95.0550 Indian rupees)