India will sell 120 billion rupees ($1.46 billion) of a new 10-year bond on Friday, which will replace the existing benchmark in the coming weeks. "Since the strong technical level of 7.26% was unable to break, there was reversal, and state-run banks also continue to offload," a trader with a private bank said.
Still, underlying sentiment remained positive after the government said it aimed gross borrowing of 15.43 trillion rupees through the sale of bonds in 2023-24, while keeping net borrowing at 11.81 trillion rupees. "On the borrowing front, market cheered the lower than expected borrowing figures and low fiscal deficit target is positive for the yields," said Sanjay Grover, chief general manager - treasury and global markets at Bank of Baroda said. "Going ahead, it is expected that the yields will soften in the near term."
Bonds yields had also eased in opening trades as the 10-year U.S. yield fell below 3.40% after the Fed raised interest rates by 25 basis points (bps), but provided guidance that was viewed as dovish by the market.
The Fed policy will be followed by the Reserve Bank of India's decision on Feb. 8, when it is widely expected to hike repo rate by 25 bps to 6.50%. The benchmark bond yield could break the key 7.25% handle due to the high likelihood of the central bank changing its policy stance to neutral after hiking interest rates once last time next week, said Vikas Goel, chief executive officer of PNB Gilts. "There is a very high probability of the central bank hiking rates and changing its stance to neutral. If this happens, the benchmark bond yield may test 7.10%-7.15% levels." ($1 = 82.1280 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Nivedita Bhattacharjee)
