Indian government bond yields are expected to move upwards in the early second half of the fiscal year. As U.S. yields continue their upward move, the 10-year yield will rise to fresh 16-year highs, which will underpin sentiment.
The yield on the benchmark 10-year bond, with a maturity of 7.18% due in 2033, ranged between 7.20% and 7.26% on Tuesday, having closed at 7.2162% in the previous session, a trader at a private bank said.
Yields rose six basis points (bps) last week, while they rose 10 bps last quarter, marking the first quarterly increase in more than a year.
“There may be a slight gap in the open as we are at the beginning of a new quarter, so traders are not ready to show big buying support,” the trader said.
The 10-year yield rose to 4.70% for the first time since October 2007, after a deal to avoid a partial government shutdown eased demand for debt.
The US Congress passed a temporary funding bill late Saturday with overwhelming support from Democrats. The deal eliminates the risk of delays in releasing government data.
The rally could be capped by falling oil prices as the Brent crude contract fell below $90 a barrel on a strengthening US dollar and profit taking. Prices rose above $97.50 a barrel last week, the highest level in nearly a year.
Sentiment is also supported as the inclusion of Indian bonds in JP Morgan’s emerging market credit index opens the door to foreign inflows. BNP Paribas Asset Management expects $20 billion in inflows over the next two years.
Meanwhile, India will borrow 6.55 trillion rupees ($78.70 billion) through bond issues in the October-March period, including 1.45 trillion rupees through 10-year bonds, accounting for 22% of total borrowing. Key Indicators: ** Brent crude futures fell 1.1% to $89.70 a barrel, after falling 4.8% in the previous session ** 10-year US Treasury yield 4.6764%, two-year interest rate 5.1104% ** Indian states target Rs 225 billion through bond sales Accumulate ($1 = 83.2290 INR)
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