Indian government bond yields are expected to rise in early session on Thursday, tracking a further jump in U.S. yields, while worries over elevated domestic inflation continue to bother investors. The benchmark 7.26% 2033 bond yield is likely to be in the 7.15%-7.19% range after ending the previous session at 7.1516%, a trader with a state-run bank said.
Traders also said that a drastic fall in the rupee could weigh on bond market sentiment. “Factors have turned more bearish, and we could see more upside to bond yields today, and till tomorrow a test of 7.20% is very likely. Even the rupee’s depreciation will start to hurt now,” the trader said.
Local bond yields have been rising recently, tracking a spike in U.S. yields, on the belief that rates will remain elevated for longer. The odds of a rate hike in September are just around 18%. Meanwhile worries that retail inflation will jump again in the near term is keeping investors at bay, as it could force the Reserve Bank of India (RBI) to pose a hawkish stance next week.
“We mark to market inflation to 6.2% in QE Sep-23 (vs our previous 5.5%), with July CPI expected to track around 6.2-6.4%,” Morgan Stanley said. India’s retail inflation jumped to 4.81% in June, after easing for four months. Traders will also await debt supply on Friday, as New Delhi aims to raise at least 390 billion rupees.