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Bond yields seen lower tracking U.S. peers; demand weighs on sentiment

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MUMBAI — Indian government bond yields are expected to open lower on Tuesday, tracking a similar move in U.S. peers, but concern over demand for debt is expected to stall any major move.

The benchmark Indian 10-year government bond yield is seen in a 7.43%-7.49% band, a trader with a private bank said. The yield ended at 7.4683% on Monday. It has risen by 18 basis points in last four sessions.

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“There may be some reversal at opening trades, but we may not be surprised to see yields resuming their uptick later in the session, as overall sentiment is bearish,” the trader said.

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U.S. yields dropped, with the 10-year benchmark ending 15 basis points lower on Monday to 3.65%, in line with other bond yields, after British Prime Minister Liz Truss was forced to abandon a tax cut plan while U.S. economic data showed a slowdown in manufacturing.

Truss had planned to eliminate a tax of 45% on the top rate on income before backing down. It had led to sharp spike in yields across the globe, with the 10-year U.S. yield jumping to its highest level in 14 years in September.

However, domestic market sentiment has remained bearish since the last few days, which was evident from weak demand at recent debt sales.

Cut-off yields were higher-than-expected at states’ debt sale for 195 billion Indian rupees ($2.39 billion) on Monday, as well as a federal bond auction for 330 billion rupees on Friday.

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The federal government aims to raise 5.92 trillion rupees through bonds in October-March, which includes 160 billion rupees of green bonds. Indian states aim to raise 2.53 trillion rupees in October-December.

A fourth straight rate hike from the Reserve Bank of India last week has dented appetite, with many expecting at least 60 bps more of rate increases in the current cycle.

On Friday, the RBI raised benchmark repo rate by 50 basis points, the fourth straight increase in the current cycle, as policymakers extended their battle to tame stubbornly above-target retail inflation rate.

The RBI has now raised interest rates by a total of 190 basis points since its first unscheduled mid-meeting hike in May, but inflation remains sticky – a phenomenon that is affecting much of the global economy. KEY INDICATORS: ** Brent crude futures was 0.4% higher at $89.20 per barrel ** 10-year U.S. Treasury yield at 3.6406%, two-year note at 4.0949% ** Reserve Bank of India to auction Treasury Bills worth 220 billion rupees ($1 = 81.5450 Indian rupees) (Reporting by Dharamraj Lalit Dhutia; Editing by Neha Arora)

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