India Bond Yields Stay Higher Ahead Of Weekly Debt Auction Result

Friday,   20-May-2022   02:05 PM (IST)

Indian federal government bond yields stayed higher in the afternoon session, as market participants awaited the result of a weekly debt auction. The benchmark 6.54% bond maturing in 2032 was at 94.42 rupees, yielding 7.36%, as of 1:00 p.m. in Mumbai against 94.65 rupees, yielding 7.32%, yesterday. The Indian rupee was at 77.57 to the dollar from 77.73 in the previous session. New Delhi is raising 320 billion rupees through sale of bonds today, and the auction includes the sale of a new 14-year paper worth 100 billion rupees. The note was last traded at a yield of 7.53% in the when-issued segment. Bond yields have risen recently, amid expectations of more hikes in the repo rate by the Monetary Policy Committee in coming months, after it raised the key policy rate by 40 basis points, its first such move in nearly four years, in an unscheduled meeting earlier this month. In the minutes, members of the panel have said the authority will have to frontload rate hikes to respond to elevated prices brought on by shortages and supply bottlenecks. “In the absence of supply augmenting measures and/or easing of supply bottlenecks, they (MPC) will do what they can do -- frontload their actions, compress demand and render the recovery stillborn,” Reserve Bank of India Deputy Governor and MPC Member Michael Patra said. The terminal policy repo rate will likely be at least 6.50% in the current rate hike cycle as the real policy rate will need to rise above equilibrium level of around 1%, ICICI Securities Primary Dealership said. “The nominal policy rate of 6% may thus be a threshold where RBI is comfortable in changing its stance back to neutral,” the bond house said in a note. India's retail inflation has breached the RBI's upper tolerance level for four straight months, with the reading in April climbing to 7.79%, the highest in nearly eight years. The benchmark Brent crude oil was trading 0.5% lower at $111.43 per barrel. India imports nearly 85% of its crude oil requirements.