India bond selloff may continue as Treasury rout, fresh debt sale hurt
Benchmark 2036 yield seen between 7.23-7.28%; ₹34,000 crore auction of 6.94% paper as inflation hits 6.09% and oil prices stay elevated
Indian government bonds are likely to face selling pressure in early trades on Friday as a selloff in US Treasuries persists, while traders brace for heavy debt supply of the benchmark paper in the weekly auction later in the day.
The benchmark 6.94 per cent 2036 bond yield is expected to move between 7.23 per cent and 7.28 per cent, according to a private-bank trader, after ending at 7.2467 per cent on Thursday.
New Delhi plans to sell ₹34,000 crore ($3.62 billion) of the benchmark 2036 paper later in the day, taking its outstanding issuance to ₹2.72 lakh crore, the highest for any security ever.
“We should see some caution at bidding, and any major moves would be seen only after the cutoffs,” the trader said.
US Treasury yields rose on Thursday after US President Donald Trump said the US does not need a deal with Iran, as traders weighed the chance of a larger-than-usual Federal Reserve rate hike next month.
October consumer-price data has beaten forecasts, spurring traders to ramp up bets on a larger rate increase on December 9.
The 10-year US yield comfortably broke above the 5 per cent handle on Thursday and stayed higher in Asian hours, as traders have now assigned a 15 per cent probability to a larger-than-expected 50-basis-point rate hike, up from zero just a week ago.
Elevated oil prices have also added to concerns about inflation, which has run above the Fed’s 2 per cent target for almost six years.
Back home, India’s annual retail inflation accelerated to 6.09 per cent in October from 5.54 per cent in September, which was above an estimate of 5.93 per cent in a Reuters poll.
The Reserve Bank of India, which raised its key rate in October for the first time in nearly four years, is expected to deliver another hike in early December.
Rates
Overnight index swap rates may continue to move higher in line with Treasury yields.
The 1-year, 2-year and 5-year OIS rates rose 4 to 5 basis points to 6.44 per cent, 6.43 per cent and 6.53 per cent, respectively, on Thursday.
Source: BusinessLine Markets
Disclaimer: This article is for general information and does not constitute investment, tax or legal advice. Markets and rates change; please verify with official sources or a qualified professional before you act.
