By Dharamraj Dhutia
MUMBAI, Feb 10 (Reuters) - Indian government bond yields
trended higher in early session on Friday, as market
participants awaited yet another supply of bonds through the
upcoming weekly debt auction.
The benchmark 10-year yield was at 7.3594% as
of 10:10 a.m. IST, after closing at 7.3432% on Thursday.
New Delhi aims to raise 300 billion rupees ($3.63
billion)through the sale of bonds later in the day. The auction
includes 110 billion rupees of the liquid 14-year note.
"It seems we are in a spiral of supply, with heavy issuances
crunched up in a smaller span of time. It has now crowded out
the market, leading to a rise in yields," a trader with a
primary dealership said.
Indian states have raised nearly 720 billion rupees over the
last three weeks, while the central government has raised 860
billion rupees through sovereign bond sale and 160 billion
rupees through green bond issuance.
Even as the federal government's bond auction-cycle ends in
February, the market remains worried about an elevated gross
supply of 15.43 trillion rupees during the next financial year,
according to several traders.
The supply of debt in the coming fiscal is likely to
outstrip demand, pushing up bond yields, and prompting the
Reserve Bank of India to likely provide support via bond buys,
said Nagaraj Kulkarni, co-head of Asia rates strategy
(ex-China), and head of flows strategy global research at
Standard Chartered Bank.
Broader sentiment remained bearish after the Reserve Bank of
India (RBI) raised the repo rate by 25 bps earlier this week and
left the door open to more tightening, while highlighting core
inflation concerns.
The RBI is likely to raise interest rates once again in
April as inflation pressures persist and the U.S. Federal
Reserve continues to tighten, analysts said.
India's annual retail inflation is expected to remain within
the RBI's targeted range for a third consecutive month, a
Reuters poll of economists predicted.
The inflation data is due on Monday and the reading is
expected at 5.90%.
($1 = 82.6230 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Sohini Goswami)
