Indian government bond yields are likely to trend higher on Monday, the first session of the new quarter, as sentiment remains negative, while a heavy state debt-supply calendar will further dent investor appetite.
The benchmark 7.26% 2033 bond yield is expected to be in the 7.10%-7.15% range after ending the previous session at 7.1166%, the highest since April 28, a trader with a primary dealership said.
“With the key 7.08% level comfortably broken, the market is now eyeing the next crucial support at the 7.15%-7.16% zone for the benchmark and there are high probabilities that this will be hit during the course of the week,” the trader said.
Bond yields jumped on Friday, tracking a spike in U.S. yields and due to weaker-than-expected demand for the benchmark note at the weekly auction, which propelled the break of 7.08%.
U.S. yields jumped and remained elevated, with the 10-year note trading close to the crucial 3.84% mark, while the two-year yield, a closer indicator of interest rate expectations, traded at 4.91%.
Strong data had increased the bets of further Federal Reserve rate hikes, with the odds of an increase in July surging to around 84%.
Indian bond yields will extend their rise in July-September due to a strong line-up of debt supply and as chances of a rate cut before the first half of next year look unlikely.
“With the global backdrop turning unfavourable, hopes of quick rate cuts have washed out and the focus will shift to factors like demand-supply dynamics, which also does not look very favourable,” said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.
This quarter, India plans to raise 4.47 trillion rupees ($54.49 billion) through bond sales, while states are aiming to raise 2.37 trillion rupees.