Government 10-year bond yield hits 7.10% before debt auction

The government bond yields rose in the early session on Friday, with benchmark bond yield touching 7.10 per cent as traders braced for a fresh debt sale through the weekly auction, while an uptick in US yields hurt sentiment.

The benchmark 7.26 per cent 2033 bond yield was at 7.09 per cent as of 10:00 am, after ending the previous session at 7.08 per cent.

"Bulls have turned cautious as the week progressed, and with the 10-year US yield rising again, we are seeing some more selling," a trader with a state-run bank said.

"Debt auction cutoffs would be the crucial trigger for the day, and any weakness in demand could see more selling."

The government aims to raise Rs 31,000 crore ($3.78 billion) through the sale of bonds on Friday, which includes Rs 12,000 crore of a new 14-year bond.

Bond yields 

Heavy supply from the central and state governments in the current quarter is expected to put upwards pressure on bond yields, traders have said.

Yields rose in the last couple of sessions after trending below the key technical level of 7.08 per cent for the benchmark.

US Treasury 

US yields rose on Thursday, with the 10-year yield hovering around the 3.85 per cent mark, as initial jobless claims for the week ended July 15 fell to their lowest since mid-May.

The data indicates that the economy was not weakening as feared earlier, and traders now await guidance from the Federal Reserve, with its interest rate decision due on Wednesday.

The odds of a 25-basis point hike stay around 96 per cent, but that of another increase after that have receded. The Fed has raised rates by 500 basis points since March 2022.

Meanwhile, foreign investors continue to largely remain on the sidelines, as their purchases have slowed down further in July while they await better levels to build fresh positions.

"Levels above 7.20 per cent on 10-year bond yield are good levels to build long positions," said Nagaraj Kulkarni, co-head of Asia Rates Strategy (ex-China) at Standard Chartered Bank said.