Bond yields little changed after recent slide, eyes Friday’s debt sale

The benchmark Indian 10-year government bond yield ended at 7.2808% after closing at 7.2736% on Wednesday. Yields had declined for seven consecutive sessions till November 15, with a total decline of 22 basis points (bps).

New Delhi is ready to increase 300,00 crore ($3.68 billion) through the sale of bonds on Friday, including liquid five-year and 14-year bonds. Traders will keep an eye on this auction.

“Market expectations for the terminal rate are 6.25%/6.50%, and inflation is expected to peak,” said Vikram Chopra, a fund manager at DSP Investment Managers.

“However, there are still factors that need to be monitored. Oil prices are one… If they remain stable above the higher end of the RBI’s band, the market will continue to look ahead to inflationary internals.”

Bond yields edged lower earlier in the session following a fall in US yields and oil prices, but failed to stay below the crucial 7.25% level.

Long-term US yields fell on Wednesday and the yield curve inversion deepened after a strong retail sales report raised expectations that the Federal Reserve could continue raising rates, putting economic growth at risk.

The 10-year US yield eased over 10 bps to 3.70% on Wednesday, while the two-year yield, which is a more direct indicator of interest rate expectations, stood at 4.36%.

Oil prices were lower as rising COVID-19 cases in China raised concerns over demand in the world’s biggest crude importer. The benchmark Brent crude contract was 1.1% lower at $91.80 a barrel, after falling 1.1% in the previous session.

Fluctuations in oil prices have a direct impact on local inflation as India is a major importer. The country’s retail inflation fell to a three-month low of 6.77% in October, raising bets that the Reserve Bank of India may slow the pace of rate hike after raising the repo rate by 190 bps to 5.90% from May.