10-year bond yield above 7.35% amid RBI's plan to sell bonds via auctions

Indian government bond yields trended lower early on Tuesday as a sharp spike in yields drove value purchases even though broader sentiment remained cautious on the central bank's plans to sell bonds and fears that oil could rise again.

The 10-year benchmark 7.18 per cent 2033 bond yield was at 7.3613 per cent as of 10:05 am IST, after ending at 7.3806 per cent in the previous session.

The yield ended at its highest level in seven months on Monday and has risen 17 basis points in the last two sessions, triggered by the Reserve Bank of India's plans to sell bonds via auctions.

"There was heavy selloff based on speculations yesterday, and since that has not turned out to be true, some value buying has emerged, but the benchmark yield may now remain around 7.35 per cent" a trader with a private bank said.

Bond yields jumped towards the end of the session on Monday, amid speculations that the central bank may announce details of an open market sale after market hours.

Market participants expect bond yields to remain high, while traders wait for details on the timing and duration of the papers to be up for sale.

The RBI has sold bonds worth Rs 84,909 crore via screen-based operations in five weeks to September 29, to drain additional liquidity.

Traders also remain focused on any impact on oil prices from potential supply disruptions due to the ongoing conflict between Israel and the Islamist militant group Hamas. The benchmark Brent crude contract is threatening to rise past the crucial $90 per barrel mark.

Meanwhile, US yields eased, with the 10-year yield dropping to 4.65 per cent in Asian hours, amid demand for safe-haven assets following violence in the Middle East.

Traders also eye supply, as New Delhi will raise Rs 34,000 crore through the sale of bonds on Friday, while states aim to raise Rs 10,250 crore later in the day