Indian government bond traders are looking for cues on demand at the weekly debt auction after yields slipped in early trading on Friday, tracking U.S. peers amid a softer inflation reading. The benchmark 7.26% 2033 bond yield was trading at 7.0718% as of 10:00 a.m. IST after ending the previous session at 7.0729%, a trader with a primary dealership said.
New Delhi aims to raise at least 330 billion rupees ($4.03 billion) by way of a sale of bonds later in the day, and the auction includes 140 billion rupees of the benchmark note. “Bonds have already rallied, and the focus will remain on investor appetite which will be witnessed during auction, and that would provide guidance, whether the current rally will sustain or reverse,” a trader with a primary dealership said.
The yields are down as bets that the U.S. Federal Reserve will stop hiking interest rates after an expected 25 basis points increase later this month gathered strength. The Fed had paused in June but indicated two more raises in 2023. The odds of a 25-bps hike on July 26 remain around 89%, while those of another increase plunged.
While U.S. inflation registered its smallest annual increase in more than two years after rising 0.2% last month to log a gain of 3.0% for the year, local inflation accelerated to 4.81%, snapping four months of easing and higher than the 4.31% in May. Meanwhile, the benchmark 10-year bond may become attractive at higher yields, prompting foreign investors who have slowed purchases in recent weeks to return, a rate strategist at Standard Chartered Bank said.