By Dharamraj Dhutia
MUMBAI, Dec 30 (Reuters) – Indian government bond yields are expected to rise marginally in opening trades on Friday – the last trading session of 2022 – as the weekly debt auction adds to supply.
The benchmark 10-year yield IN072632G=CC is likely to move in the 7.30%-7.34% band, a trader with a private bank said. The yield ended at 7.3114% on Thursday.
New Delhi will raise 300 billion rupees ($3.63 billion) through the sale of bonds later in the day. The auction includes liquid 14-year paper.
We may see some selling as traders make way for fresh stock, but since it is the last day of the quarter, any major rise in yields is unlikely as that will hurt banks’ portfolio valuations, the trader said.
Bond yields have remained in a thin range for the last few sessions and trading volumes have plummeted, as the bulk of the traders stayed on the sidelines, awaiting the end of this quarter.
Trading activity from foreign banks and foreign investors was also muted before the year-end, after a relatively active 12-month period in 2022.
As a result of tepid activity, daily average trading volume has slumped to 189 billion rupees ($2.28 billion) in the last 10 sessions, sharply lower as compared to 343 billion rupees in the first half of this month.
The benchmark bond yield is set to post a dip for the second consecutive quarter, even though the move is minuscule compared to the calendar year’s sharp spike.
“I expect the lacklustre trading activity in bonds to spill over in the first fortnight of January, and move meaningfully only in the second half of the month, once budget expectations start getting priced in,” said Vijay Sharma, senior executive vice president at PNB Gilts.
The 10-year U.S. yield is set to post its biggest rise ever, after the Federal Reserve hiked interest rate by 425 basis points (bps) in 2022, the most in the last 37 years. The 10-year yield was at 3.83%.
The Reserve Bank of India may also undertake one more rate hike as core inflation stayed elevated, even as headline retail inflation eased below 6% in November. The RBI hiked the repo rate by 225 bps in 2022 to 6.25%.
KEY INDICATORS:
** Brent crude futures LCOc1 up 1.9% to $83.85 per barrel, after easing 1.2% in the previous session
** 10-year U.S. Treasury yield US10YT=RR was at 3.8529% and the two-year note US2YT=RR at 4.3760%
** India to sell federal government bonds worth 300 billion rupees
** RBI to set underwriting fees for bonds worth 300 billion rupees
** RBI to conduct 14-day variable rate reverse repo auction for 1.50 trillion rupees
($1 = 82.7580 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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