Bond yields may rise tracking U.S. yields, oil; debt supply eyed


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MUMBAI — Indian government bond yields are expected to rise on Friday, tracking an uptick in U.S. peers as well as oil prices, while weekly debt auction supply may also weigh on sentiment.

The benchmark Indian 10-year government bond yield is seen in a 7.40%-7.46% band until the auction, a trader with a private bank said. The yield ended at 7.4217% on Thursday.

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U.S. yields rose on Thursday, with the 10-year yield briefly hitting 4.08%, its highest level in 15 years after consumer prices increased more than expected in September. The two-year yield rose above 4.50%.

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“Inflation in the U.S. is not moving down and that will ensure another hawkish commentary and hefty rate hike by the Federal Reserve,” the trader said. “Also, absorption of debt supply to add more pressure.”

The Indian government aims to raise 300 billion Indian rupees ($3.65 billion) through sale of bonds that includes liquid five-year and 14-year bonds.

Meanwhile, in U.S., the consumer price index rose 0.4% after gaining 0.1% in August. Economists polled by Reuters had forecast the CPI would climb 0.2%.

The U.S. Fed fund futures have almost fully priced in a fourth consecutive 75 basis points rate hike by the Federal Reserve in November. The U.S. Fed has already raised interest rate by 300 basis points since March.

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Aggressive rate hikes by the Fed may influence policy tightening domestically with the Indian rupee under pressure.

The Reserve Bank of India has already raised rates by 190 basis points since May to tackle high inflation.

India’s annual retail inflation accelerated to a five-month high of 7.41% in September and the inflation print remained above the RBI’s target for three quarters. The RBI is mandated to keep inflation within 2 percentage points on either side of its 4% target.

Meanwhile, rising oil prices to also hurt, as India is one of the largest importers of crude oil and that has a direct impact on inflation.

The benchmark Brent crude contract rose on Thursday, as low levels of diesel inventory ahead of winter triggered buying. KEY INDICATORS: ** Brent crude futures 0.3% higher at $94.85 per barrel, after rising 2.3% in previous session ** 10-year U.S. Treasury yield was at 3.9207% and the two-year note at 4.3142% ** RBI to set underwriting fees for 300 billion rupees weekly bond auction ** India to sell federal government bonds worth 300 billion rupees ($1 = 82.1880 Indian rupees) (Reporting by Dharamraj Lalit Dhutia; Editing by Neha Arora)


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