Rising Treasury yields, supply to push Indian long-term bond yields higher

Mint

04-07-2025

MUMBAI, July 4 (Reuters) - India's long-term government bond yields are likely to move higher in early trades on Friday, tracking U.S. Treasury yields, while debt supply of long-term notes will further test investor appetite.
The rise may be capped and short-term bond yields may ease after the central bank did not raise the quantum of liquidity it aims to withdraw from the banking system, as some traders had expected.
The yield on the benchmark 10-year bond is expected to trade between 6.28% and 6.33%, a trader at a private bank said, after closing at 6.2875% in the previous session. The five-year 6.75% 2029 bond ended at 5.9587% on Thursday.
New Delhi will sell 160 billion rupees ($1.87 billion) each of a new 15-year bond and a 40-year paper on Friday, at a time when demand for long-term bonds has not been very strong.
U.S. Treasury yields rose on Thursday and ended 15 basis points higher than the lows hit earlier in the week.
Yields rose after data showed the U.S. created more jobs than expected in June, supporting the Federal Reserve's patient stance on cutting interest rates.
The probability of a rate cut from the Fed in July tanked to 5%, from 25% before the data, with 33% chances that the Fed maintains status quo in September as well.
"People were not expecting this, and we would see a reaction in the long-end, while supply will compound the selloff," the trader said.
On the other hand, the Reserve Bank of India did not raise the quantum of its seven-day variable rate reverse repo from last week, even as most were expecting a rise, and this could bode well for the shorter end of the yield curve, traders said. RATES India's overnight index swap rates are likely to see paying pressure, led by the longer-end.
The one-year OIS rate ended at 5.51%, while the two-year OIS rate was at 5.46%. The liquid five-year ended at 5.65% on Thursday. KEY INDICATORS: ** Brent crude futures were 0.3% lower at $68.60 per barrel after easing 0.5% in the previous session ** Ten-year U.S. Treasury yield at 4.3400%; two-year yield at 3.8822% ** India to sell sovereign bonds worth 320 billion rupees ** RBI to set underwriting fees for 320 billion rupees of sovereign bond auction ** RBI to conduct seven-day variable rate reverse repo auction worth 1 trillion rupees ($1 = 85.4570 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Ronojoy Mazumdar)