Indian government bond yields ended higher for a second consecutive session on Friday, as weekly auction added to debt supply, while elevated U.S. Treasury yields dented appetite.
The benchmark 10-year Indian government bond yield ended at 7.2318%. The yield rose two basis points on Thursday to end at 7.2146%. The 10-year 7.26% 2032 bond yield ended at 7.2135% after ending at 7.1859% on Thursday.
India raised 330 billion rupees ($4.14 billion) through bond auction, including 130 billion rupees of 7.26% 2032 note, which is expected to replace the existing benchmark paper soon.
However, the Reserve Bank of India partially devolved seven-year bonds on primary dealers, indicating weak demand for the tenure.
“Fundamentals are weak and that was reflected in today’s movement,” Ritesh Bhusari, deputy general manager, treasury at South Indian Bank.
“The only thing that is stopping any major spike in yields is speculations of early progress for inclusion of Indian bonds in global indices.”
India wants global bond index operators to consider local settlement of its government securities, if those are included, a government official said on Thursday.
Meanwhile, U.S. Treasury yields persisted in upward momentum, with the 10-year yield staying closer to 3.25%, its highest level in over two months, ahead of non-farm payrolls data due on Friday.
Investors are anticipating a strong job report, which could spur further aggressive monetary tightening by the U.S. Federal Reserve.
A major rate increase from the Fed could indicate a similar move from the RBI on Sep. 30, traders said.
The RBI has hiked repo rate by 140 bps to 5.40% in May-August.
Earlier in the day, a member of the RBI’s monetary policy committee (MPC) said the success of interest rate hikes to control inflation was not yet clear, and the pace of rate adjustment will depend on the state of the economy.
“If there is robust economic growth, then we would like to accelerate the (inflation) reduction to 4%. But, if the economy is struggling, then a slower pace of adjustment would be appropriate,” MPC member J.R. Varma told the Reuters Trading India forum.
($1 = 79.7875 Indian rupees)
(Reporting by Dharamraj Lalit Dhutia; Editing by Neha Arora)
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