India bond yields rise on borrowing plan but end flat for the week

Indian government bond yields rose on Friday after New Delhi upheld its borrowing plan as budgeted, defying some market expectations of a cut, though yields were little changed for the week.

The benchmark 10-year yield ended at 6.7609 per cent as of 10:00 am IST, compared with its previous close of 6.7178 per cent, which was the lowest since Feb. 21, 2022. On a weekly basis, the yield was little changed after easing for last three weeks.

"While no borrowing cut was announced, we cannot rule out the announcement of a cut to borrowing later in the half," analysts at Nomura said.

Government will sell bonds worth Rs 6.61 lakh crore ($79 billion) from October through March, which is in line with its annual budgeted borrowing of Rs 14.01 lakh crore for April-March.

The bond yield curve steepened with long-end rates seeing a small uptick on Friday after borrowing saw a reduction in the shorter end and higher supply of ultra-long notes and traders anticipate the steepening to magnify in the run-up to the central bank's monetary policy decision.

"Domestic macros appear stable for now, with a 6 per cent surplus monsoon... We expect the RBI to embark on a monetary policy easing cycle in October-December, with a stance change and a repo rate cut of 25 basis points," Aditya Vyas, an economist with STCI Primary Dealers said.

Meanwhile, US bond yields rose after strong data, including an unexpected drop in jobless claims, led traders to bet that the Federal Reserve will cut rates again by 50 basis points at its November meeting.

The Fed had slashed rates by 50 bps last week, and had guided for another 50 bps of cuts in 2024. The interest rate futures market has assigned a higher probability of another 50 bps reduction. The odds have now eased to 49 per cent from 60 per cent earlier.