Indian bond yields rise ahead of Friday’s debt supply, hawkish policy weighs

The benchmark 10-year yield ended at 7.2890% after ending at 7.2693% on Wednesday. It has risen by eight basis points in last five sessions through Thursday.

“Bond yields have adjusted to the monetary policy, and will now react to inflation data prints next week as well as Federal Reserve’s policy decision,” said Soumyajit Niyogi, director of core analytical group at India Ratings & Research.

New Delhi will raise 280 billion Indian rupees ($3.40 billion) through sale of bonds on Friday, which includes 110 billion rupees of the benchmark paper.

Market sentiment cautious after the Reserve Bank of India’s monetary policy committee raised its key policy rate by 35 basis points to 6.25%, the highest in over three years and highlighted inflation concerns.

After comments from the central bank authorities, most market participants expect another 25 bps move in February, with Goldman Sachs expecting a similar move in April as well.

Meanwhile, Nomura has predicted that the central bank may have to start cutting rates with six months of reaching the terminal rate of 6.50% in February due to weaker growth concerns.

Meanwhile major rise in bond yields was averted tracking consistent fall in U.S. yields and oil prices.

The 10-year U.S. yield fell to 3.40% on Wednesday, its lowest in nearly three months, ahead of the Federal Reserve monetary policy decision next week, wherein markets broadly expecting a 50 basis points hike. The Fed has raised rates by 375 basis points so far in 2022.

The benchmark Brent crude contract dropped to its lowest level for 2022 on Wednesday, driven by bigger-than-expected increases in U.S. fuel stocks, and was last at $77.90 per barrel.

India is one of the largest importers of crude oil, and price movements have direct impact on retail inflation. The data for November is due on Monday, and the reading is expected to fall further after 6.77% on-year rise in October.

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