Thursday, September 21

Indian bond yields seen higher tracking US peers, sentiment remains weak

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MUMBAI — Indian government bond yields are expected to trade higher in opening deals on Monday, extending gains fueled by the central bank’s interest rate hike and hawkish commentary on Friday, and tracking a spike in US Treasury yields.

The yield on the 10-year benchmark bond is likely to trade in a 7.32%-7.38% band, a trader with a private bank said. It closed 14 basis points higher at 7.3005% on Friday, posting the biggest single-day rise in three months.

“Sentiment has already weakened after the hawkish monetary policy decision as well as commentary, and higher US yields will further breed selling pressure,” the trader said.

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The Reserve Bank of India raised the key lending rate, or repo rate, by 50 basis points on Friday, the third increase in the current cycle, to cool stubbornly high inflation that has remained above its tolerance band for six straight months.

US Treasury yields rose on Friday, with the 10-year yield climbing 16 basis points to end at 2.8400%, its biggest such move in nearly two months, after strong US non-farm payroll data.

The US Treasury yield curve has inverted by as much as 45 bps after the data, as the market has started expecting another 75-bp hike from the Federal Reserve in September.

Meanwhile, market participants will await results of a state debt auction to gauge investor appetite. Indian states will seek to raise 138 billion rupees ($1.74 billion) in the auction. A weekly auction of central government bonds saw weak demand and higher-than-expected cut-off yields on Friday.

Indian markets will be closed on Tuesday for a local holiday.

KEY INDIDATORS: * Brent crude futures down 0.2% at $94.7 per barrel

* Ten-year US note yield at 2.83% * India states to raise 138 billion rupees via sale of bonds. ($1 = 79.3600 Indian rupees) (Reporting by Dharamraj Lalit Dhutia; Editing by Subhranshu Sahu)