Yields edge higher ahead of debt sale, MPC policy minutes key


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MUMBAI — Indian government bond yields rose marginally in early trading on Friday, ahead of fresh supply of debt via a weekly auction, with the broader market awaiting minutes from the central bank’s latest meeting that will be released later in the day.

The benchmark Indian 10-year government bond yield was trading at 7.4378% as of 0440 GMT, after ending at 7.4217% on Thursday.

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“The volume is very low and hence the moves are a bit distorted. But, broadly speaking, yields should see an upmove as rate hike pressures from the U.S. are expected to stay,” a trader with a state-run bank said.

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“Debt auction cut-offs and language in the minutes will act as crucial trigger.”

The Indian government aims to raise 300 billion rupees ($3.65 billion) through a sale of bonds, which includes liquid 14-year notes.

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

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 Fed has already raised rates by 300 basis points since March.

Aggressive rate hikes by the U.S. central bank could influence policy tightening in India and put pressure on the local currency. The Reserve Bank of India-led (RBI) Monetary Policy Committee (MPC) has already raised rates by 190 basis points since May to tackle high inflation.

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Investors’ focus is on minutes from the MPC’s September meeting when interest rates were hiked by 50 bps.

The minutes come against the backdrop of India’s annual retail inflation accelerating to a five-month high of 7.41% in September, the ninth straight month that the print remained above the RBI’s target. This could force it to hike rates further.

Rising oil prices also had an impact on bonds’ moves. The benchmark Brent crude contract rose as low levels of diesel inventory ahead of winter triggered buying and was last at $94.40 per barrel.

India is one of the largest importers of crude oil and that has a direct impact on inflation. ($1 = 82.2270 Indian rupees) (Reporting by Dharamraj Lalit Dhutia; editing by Uttaresh.V)


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