By Dharamraj Dhutia
MUMBAI, – Indian government bond yields ended a tad higher on Thursday after the central bank emphasized domestic inflation concerns, while market participants awaited a fresh supply of debt through the weekly auction.
The benchmark 10-year bond yield ended at 6.8329%, compared with its close of 6.8125% on Tuesday. Indian markets were shut on Wednesday for a holiday.
New Delhi will sell 220 billion rupees ($2.60 billion) of benchmark bonds on Friday, which will help increase liquidity and trading in this paper as well as provide more comfort to short sellers.
On Wednesday, the Reserve Bank of India (RBI) said what is worrying about inflation is that apart from a sharp surge in the momentum of food prices, core inflation has also edged up.
It said there are early signs of spillovers of high primary food prices following a surge in the prices of edible oil.
India’s inflation accelerated to 6.21% in October, breaching the RBI’s target range of 2%-6% for the first time in 14 months and dashing hopes for a December rate cut.
“Receding expectations of a rate cut by the RBI and repricing of Fed rate cuts, with markets expecting a relatively higher terminal rate, kept bond markets under (selling) pressure,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank. She expects the yield to remain in the 6.80%-6.90% band in the near term.
Indian bond yields have recently followed U.S. Treasury yields higher on easing bets of a U.S. rate cut next month. The 10-year U.S. yield was around 4.40% on Thursday.
Traders see a 59% chance of a rate reduction next month, down from 83% last week, according to the CME FedWatch tool. ($1 = 84.4600 Indian rupees) (Reporting by Dharamraj Dhutia Editing by Sonia Cheema)
