India 10-Year Bond Yield At 20-Month High As Investor Grow Cautious Of Govt Debt; Reserve Bank Of India’s Support Eyed
India’s benchmark 10-year bond yield rose to its highest level since April last year as investors became wary of a heavy government debt pipeline, rising global oil prices and a lack of direct support from the central bank.
Traders said the absence of a new 10-year bond as part of papers on sale on Friday in the upcoming debt auction also dented sentiment as the outstanding stock on the current benchmark is already at Rs 1.48 trillion.
India is selling bonds worth Rs 240 billion, including Rs 130 billion worth of 10-year papers, on Friday. Traditionally, the government issues a new bond when the existing paper has reached arrears of around Rs 1.5 trillion.
The benchmark 10-year bond yield stood at 6.49 per cent, after touching 6.50 per cent, the highest level since April 13, 2020.
Suyash Choudhary, head of fixed income at IDFC Asset Management Company, said, “The sentiment has changed somewhat despite the Reserve Bank of India’s (Reserve Bank of India) comments.”
“This is largely due to two reasons: short-term variable rate reverse repo auctions, which have led to effective overnight deployment by banks, and the return on secondary market sales of government bonds by the RBI.”
Keeping rates stable at the start of the month, the central bank said it would remain favorable to support a recovery amid rising COVID-19 cases driven by the new Omicron version of the virus.
In its weekly statistical supplement released on Friday, the RBI reported sales of Rs 20.35 billion under open market operations in the week till December 17.
Traders said rise in global oil prices, heavy supply of bonds in weekly auctions and rise in domestic retail inflation will keep pressure on yields.
Oil prices extended gains on Tuesday, trading near one-month highs the previous day on hopes that the Omicron variant will have a limited impact on fuel demand.
Traders expect the central bank to provide some kind of support to help the market ahead of the debt sale on Friday.