Fresh debt sale set to rattle Indian bonds as rate-hike jitters persist

Business Recorder reported that Indian government bonds could come under selling pressure before a fresh debt sale on Friday, as caution about the central bank's interest-rate outlook persists. A primary dealership trader expects the benchmark 6.94% 2036 bond yield to trade between 7.38% and 7.42%, after it closed at 7.3921% in the previous session. Yields move higher when prices fall.

The Indian government intends to auction 340 billion rupees ($3.58 billion) of the benchmark paper on Friday, which will take its total issuance to 2.38 trillion rupees. The trader cautioned that the cutoff yield could move above 7.40% given the heavy selling already seen. Inflation in September rose to 5.54%, and most economists expect it to breach the upper limit of the RBI's 6% tolerance band in October.

Governor Sanjay Malhotra said on Tuesday that the RBI typically avoids using interest rates to protect financial stability, though he acknowledged the two goals are linked. Higher inflation and a sharper focus on currency stability have raised bets on a larger rate hike in December, lifting short-term yields and overnight indexed swap rates. Separately, tighter daily cash reserve ratio maintenance rules take effect on Friday and could weigh most on shorter-dated bonds.