By Dharamraj Dhutia
MUMBAI, – Indian government bond yields may open a tad higher on Tuesday, as traders brace for higher-than-expected supply from states later in the day, while U.S. Treasury yields remained largely unchanged.
The benchmark 10-year yield is likely to move between 6.84% and 6.87%, compared with its previous close of 6.8509%, a trader with a primary dealership said.
“With global factors going quite, focus will once again shift to demand-supply dynamics for the week, starting with state debt auction today followed by benchmark bond sale on Friday.”
Indian states aim to raise 362.50 billion rupees through sale of bonds later in the day, and the quantum is larger than the scheduled amount of 294 billion rupees, and also highest for this financial year.
New Delhi is likely to sell bonds worth 300 billion rupees on Friday, which includes the benchmark bond worth 200 billion rupees.
U.S. yields were barely changed on Monday, after economic data signalled cooling in business spending, but moves were limited after yields had already dropped sharply last week.
“Short of a major recession or a risk-off, we are not convinced that 10-year and 30-year U.S. yields should be meaningfully lower than where they are now,” DBS said in a note.
Last week, U.S. Federal Reserve Chair Jerome Powell delivered his strongest signal that interest rates will come down in September, saying further cooling in the job market would be unwelcome, while expressing confidence that inflation is within reach of Fed’s 2% target.
While a 25-basis-point cut in September is certain, the odds of a 50 bps move eased below 30% after reaching 36% on Monday. For the year, the market is expecting rate cuts of 100 bps, according to CME FedWatch Tool.
The next major triggers for rate expectations would come from the U.S. Personal Consumption Expenditure data due this week and non-farm payrolls and unemployment data due late next week. KEY INDICATORS: ** Brent crude futures were 0.4% down at $81.10 per barrel, after rising 3.1% in the previous session ** Ten-year U.S. Treasury yield at 3.8141%, two-year yield at 3.9294% ** Fourteen Indian states to raise 362.50 billion rupees via the sale of bonds
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