Indian government bond yields are expected to drift in a narrow range on Wednesday as they continue to seek fresh triggers for a clear direction. The benchmark 7.26% 2033 bond yield is expected to be in the 7.10-7.14% range after ending the previous session at 7.1188%, a trader with a primary dealership said.
“There is hardly any move in the last couple of days, and we do not see this trend changing, as there is no strong trigger available for now, and even U.S. yields are barely moving,” the trader said. Bond yields have traded in a narrow range since the beginning of this quarter after the benchmark broke the key technical level of 7.08% on June 30.
Market participants expect central government bond yields to rise further in this quarter amid heavy debt supply and diminishing chances of a rate cut before the first half of next year. India plans to raise 4.47 trillion rupees ($54.49 billion) by way of bond sales between July and September, with 390 billion rupees on Friday.
Meanwhile, New Delhi has reduced the supply of shorter-dated treasury bills this quarter, which could lead to a fall in yields of notes at the shorter end. Kotak Mahindra Bank expects the shortage in the net supply of treasury bills to aid steepening of the yield curve and the 10-year benchmark bond yield to continue trading in the 7.05-7.15% range. Meanwhile, U.S. yields remain elevated and closer to key levels, a break of which could spur a sharp move up, traders said.
The 10-year note was trading close to the crucial 3.85% mark, while the two-year yield, a closer indicator of interest rate expectations, was around 4.90%. Strong U.S. data had increased the bets of further Federal Reserve rate hikes, with the odds of an increase in July surging to around 83%.