In the early trading session on Friday, government bond yields displayed minimal movement as market attention turned towards the upcoming weekly bond auction and its potential implications for fresh debt supply.
As of 10:00 am, the 10-year benchmark bond yield stood at 7.1594 per cent, showing a marginal deviation from its previous close at 7.1619 per cent. The government of New Delhi aims to raise Rs 33,000 crore in the auction, with Rs 16,000 crore allocated to the benchmark paper. This issuance will elevate the outstanding total of the note to Rs 1.69 lakh crore, surpassing the ad-hoc limit when the government discontinues issuing a specific security.
Investors are closely observing the absorption of the fresh debt at current yield levels, recognizing it as a pivotal factor influencing whether the benchmark yield can break the 7.15 per cent threshold on the downside. This level has proven to be challenging to breach in recent times, according to a trader from a state-run bank.
Despite a slight uptick in Thursday’s US inflation reading, the Indian market exhibited limited reaction. The US consumer prices rose by 0.3 per cent last month, with the consumer price index (CPI) increasing by 3.4 per cent in the 12-month period, slightly surpassing expectations. The subdued response suggests that market expectations for an early interest rate cut by the Federal Reserve remain unchanged.
On Thursday, US yields witnessed a decline, with the 10-year yield staying below the crucial 4 per cent mark. The probability of a rate cut by the Fed in March saw a slight increase to 73 per cent, up from below 70 per cent earlier in the week.
The spotlight now shifts to India’s retail inflation data, projected to rise to 5.87 per cent in December from 5.55 per cent in November, as per a Reuters poll. This anticipated increase is expected to stay within the Reserve Bank of India’s target range for the fourth consecutive month, keeping investors vigilant for potential impacts on the bond market.
