MUMBAI, March 3 (Reuters) – Indian government bond yields are expected to rise at the start of the last month of the financial year, which will begin with a heavier-than-scheduled supply of debt by Indian states.
The benchmark 10-year yield is likely to move between 6.70% and 6.75% on Monday, a trader with a private bank said, compared with its previous close of 6.7286%.
Indian states aim to raise 505 billion rupees ($5.78 billion) on Tuesday, and the quantum is over 100 billion rupees higher from the pre-announced calendar.
“There is no major support for the bulls currently, and as we enter the last month of the financial year, more caution will prevail and yields could see upward pressure due to excessive supply from states,” the trader said.
“Weak demand for bonds was clearly visible in the last auction of the central government debt on Friday.”
The yield on the liquid 15-year bond jumped to its highest level in one-and-a-half months due to weaker-than-expected demand for the note at the auction.
The majority of supply from states is concentrated on the longer end of the curve, and comes at a time when the appetite for long-duration papers is waning and is expected to weaken further by the end of the financial year.
Investors are also wary of adding more longer-duration debt to their portfolios amid uncertainty about whether the Reserve Bank of India will buy more debt in March.
The RBI conducted a three-year dollar-rupee buy/sell swap on Friday. The first leg will settle on Tuesday, infusing around 870 billion rupees into the banking system.
Since mid-January, the central bank has infused more than 3.60 trillion rupees into the banking system through a combination of tools such as primary and secondary market bond purchases, forex swaps and early-April maturity repos.
Meanwhile, India’s economy expanded by 6.2% in the October-December period, picking up from a revised 5.6% growth in the previous quarter. KEY INDICATORS: ** Brent crude futures were up 0.6% at $73.60 per barrel, after easing 1.2% in the previous session ** Ten-year U.S. Treasury yield at 4.2463%; two-year yield at 4.0239% ** RBI to conduct 1-day variable rate repo auction for 250 billion rupees ($1 = 87.4020 Indian rupees) (Reporting by Dharamraj Dhutia Editing by Eileen Soreng)
