India bond yields seen rising ahead of debt supply

By Dharamraj Dhutia
MUMBAI, Nov 22 (Reuters) – Indian government bond yields are expected to rise on Friday ahead of a fresh supply of debt through the weekly auction, while U.S. yields continue to remain elevated.
The benchmark 10-year bond yield is likely to move between 6.81% and 6.85% till the completion of the auction, compared with its previous close of 6.8329% on Thursday, according to a trader with a private bank.
New Delhi will sell 320 billion rupees ($3.79 billion) of bonds on Friday, including 220 billion rupees of the benchmark bond, which will help increase liquidity and trading in this paper.
“There could be some short selling in the benchmark bond as we have huge supply lined up, and that will put further upward pressure on yields,” the trader said.
“Benchmark bond yield could hit key level of 6.85%, but should see buying support at that level,” the trader added.
Bond yields have risen since the Reserve Bank of India (RBI) once again highlighted inflation concerns on Wednesday, while selling by foreign investors, who have taken out over 100 billion rupees from domestic bonds in November, is also emerging as a pain point.
The RBI said that apart from a sharp surge in the momentum of food prices, core inflation has also edged up, which is a worrying factor. It added that there are early signs of spillovers of high primary food prices following a surge in the prices of edible oil.
India’s inflation accelerated to 6.21% in October, breaching the RBI’s target range of 2%-6% for the first time in 14 months and dashing hopes for a December rate cut.
Indian bond yields have also followed U.S. Treasury yields higher recently on easing bets for a Federal Reserve rate cut next month.
Traders now see a 60% chance of a U.S. rate reduction in December, down from 72% last week, according to the CME FedWatch tool. KEY INDICATORS: ** Brent crude futures up 0.2% at $74.55 per barrel, after rising 2% in previous session ** Ten-year U.S. Treasury yield was at 4.4159%; two-year yield was at 4.3423% ** India to sell sovereign bonds worth 320 billion rupees ** RBI to set underwriting fees for 320 billion rupees of sovereign bond auction ($1 = 84.5060 Indian rupees) (Reporting by Dharamraj Dhutia Editing by Sonia Cheema)