Updated January 2nd, 2024 at 18:01 IST

Bond yields seen little changed ahead of state debt sale

States aim to raise a record Rs 4.13 lakh crore through the sale of bonds in January-March, exceeding every market estimate and weighing on investor appetite.

Reported by: Thomson Reuters
Bonds | Image:Pexels
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Government bond yields are expected to be relatively unchanged in the second trading session of the New Year, with traders awaiting the first state debt sale of the quarter bringing heavy supply to the market.

The 10-year benchmark bond yield is expected to drift in the 7.17 per cent-7.21 per cent range on Tuesday following its closing at 7.1969 per cent in the first session of 2024, a trader with a private bank said.

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"As we move back into normal action from holiday mode, it would be interesting to see the demand for state bonds today, after the heavy borrowing schedule for the quarter, which shocked the markets," the trader said.

Indian states aim to raise 16,000 crore ($1.92 billion) through a sale of bonds later in the day, which could be the smallest auction in terms of quantum for the quarter.

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States aim to raise a record Rs 4.13 lakh crore through the sale of bonds in January-March, exceeding every market estimate and weighing on investor appetite.

Bond yields had risen on Monday following the announcement of the calendar after market hours on Friday.

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As the days progress, market participants will likely be keen to react to factors like purchases from foreign investors as well as state-run banks, both of which are expected to be among the buyers this month.

While state-run lenders made large purchases in the last week of 2023 and foreign investment notched a remarkable jump in the last three months of 2023, inflows reached a six-year high.

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Traders also anticipate the bond yield curve to "bull steepen" this year on expected interest rate cuts from the US and Indian central banks. Bull steepening occurs when the yields on shorter-maturity bonds fall faster than the longer-end.

Meanwhile, the 10-year US yield remained in the critical 3.85 per cent-3.90 per cent range in Asian hours, as investors anticipate the Federal Reserve to cut rates from as early as March.

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Published January 2nd, 2024 at 09:22 IST