Indian government bond yields dipped on Friday, June 18, after stronger-than-expected demand at debt sales triggered short covering, and a slide in US yields also aided. However, yields ended higher for the week following hawkish commentary from global central banks. New Delhi raised INR310bn ($3.78bn) through the sale of bonds, including the liquid 7.41% 2036 paper, which likely attracted buying from large corporates. Short sellers were unsure of any further immediate rise in yields after the breach of key technical levels in the absence of a fresh trigger. Meanwhile, members of India’s six-member monetary policy committee (MPC) appeared increasingly divergent in their views on the future course of rate hikes, but all three internal members reiterated the pause was only for June.
The benchmark 7.26% 2033 bond yield ended at 7.0726% after closing at 7.0871% in the previous session. The yield rose three basis points for the week. Strong demand at the auction and US yields moving a tad lower led to similar action in Indian bond yields, said VRC Reddy, treasury head of Karur Vysya Bank. We expect the benchmark bond yield to trade in 7.05%-7.10% for the rest of the month.
A narrower interest rate differential with the US is unlikely to prompt the MPC to raise rates, but a rebound in inflation could, three external members said in separate interviews. The RBI kept its key lending rate steady for a second straight meeting on June 8 but signalled monetary conditions will remain tight as it looks to attain the 4% inflation target. Comments from Federal Reserve Chair Jerome Powell, suggesting rates could go higher, continued to hurt. Last week, the Fed kept rates unchanged but warned of a 50-bps hike in 2023.
