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MUMBAI — Indian government bond yields climbed on Thursday, tracking a sharp spike in U.S. yields, while the rupee teetering at record lows also weighed on sentiment.
The benchmark 10-year government bond yield was at 7.5076% as of 0500 GMT, after ending at 7.4510% on Wednesday.
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“The entire bullishness after the minutes (of the Reserve Bank of India’s policy meeting) is completely wiped off after the recent movements in U.S. Treasuries as well as the local currency,” a trader with a private bank said.
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“The market is bracing for debt supply tomorrow, and any fall below 7.50% for the day can be safely ruled out.”
The Indian rupee slid to a record low for a second consecutive day on Thursday, as the dollar’s surge, on fears over rising interest rates, dragged on Asian currencies broadly.
The rupee breached the key 83-per-dollar mark to fall to a record low of 83.20.
New Delhi is set to raise 280 billion Indian rupees ($3.37 billion) through the sale of bonds on Friday, which includes 120 billion rupees of the benchmark paper.
A selloff in U.S. Treasuries pushed the benchmark 10-year yield to a 14-year high, as investors largely shrugged off a weak housing report and expect the Federal Reserve to remain aggressive in tightening rates.
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The two-year yield, a more direct indicator of rate expectations, jumped to its highest level in over 15 years.
The Fed has already raised rates by 300 basis points since March and is expected to hike rates by 75 bps in each of its next two meetings.
Such aggressive hikes may put pressure on the Reserve Bank of India to follow suit. The minutes of RBI’s latest meeting had indicated a softer guidance on policy rates.
Meanwhile, Churchil Bhatt, an executive vice president of debt investments at Kotak Life Insurance, said government debt is likely to remain a more attractive investment proposition than corporate debt as tight spreads do not justify the risks for the latter.
“Given the tight credit spreads, the sovereign curve looks better placed,” Bhatt said. ($1 = 83.1700 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Savio D’Souza)
