Indian bond yields remained steady on Tuesday, as market participants eagerly awaited the results of an auction of state-run debt later in the day. The outcome of the auction was expected to provide valuable insights into investor appetite for riskier assets.
By 0531 GMT, the 10-year benchmark bond yield had increased by 1 basis point to 6.98%, following an early morning rise to 7.01%. All eyes were on the Reserve Bank of India (RBI) as it prepared to auction 225 billion rupees ($3 billion) of government securities due in 2032 and 225 billion rupees of securities due in 2037.
Traders closely monitored the auction results as they sought to gauge investor demand for long-term debt. A trader from a foreign bank emphasized the importance of the auction, stating, “The demand at the auction will be key to determining the direction of yields.”
The RBI’s recent efforts to combat rising inflation through short-term interest rate hikes had put pressure on bond yields. However, the central bank had reassured market participants that it would continue to support the bond market, a statement that helped temper the increase in yields.
While inflation in India is anticipated to remain elevated in the coming months, the RBI expressed confidence in its ability to control inflation without compromising economic growth. The central bank’s next monetary policy decision is scheduled to be announced on June 8, adding further anticipation to the market.
In previous auctions, states had successfully raised 441 billion rupees, albeit lower than the 557 billion rupees raised in the first seven debt sales of this financial year. This trend indicated a gradual increase in supply. Looking ahead, New Delhi is expected to borrow 390 billion rupees through the sale of bonds on Friday, including a new 40-year paper.
Market participants also awaited the RBI’s policy decision on Thursday. A Reuters poll of 64 economists indicated that the central bank is likely to maintain the key interest rate at 6.50% for June and the remainder of 2023. This comes as a surprise to many, considering the RBI’s previous interest rate hike of 250 basis points in the last financial year. The focus was also on the central bank’s policy stance and guidance on liquidity management.
Meanwhile, U.S. Treasury yields remained relatively unchanged, with the 10-year yield trading around 3.70%. The likelihood of the Federal Reserve pausing rates further increased to 77% for the following week.
As the market eagerly awaits the auction results and upcoming RBI policy decisions, investors and analysts continue to assess the impact of inflation and government borrowing on the Indian bond market.
Please note: It is important to conduct thorough research and consult with financial professionals for accurate and up-to-date information before making any investment decisions. For more information and insights on bonds in India, you can visit BondsIndia, a trusted resource for comprehensive bond market analysis and investment guidance.