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Yields rise ahead of MPC policy minutes, debt sale weighs
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Indian government bond yields ended higher as weekly auction added to supply, while traders also cut positions ahead of the release of minutes of the central bank's last policy meeting later in the day.
The benchmark Indian government bond yield ended at 7.4696%, after closing at 7.4217% on Thursday. The yield rose one basis point this week, after adding an aggregate 29 bps in last four weeks.
The federal government on Friday raised 300 billion Indian rupees ($3.65 billion) through a sale of bonds at cutoff yields that were slightly higher than estimates.
"Indian bond yields are likely to rise more as the government has a large amount of borrowing, and we are likely to see some more rate hikes from the central bank to 6.50% over the next couple of policies," said Mandar Pitale, head of treasury at SBM Bank (India).
Pitale expects the benchmark yield to hit 7.75% - a level last seen in November 2018 - in the next few months, led mainly by elevated inflation rates and the lack of conviction-driven buying at current levels.
The Reserve Bank of India-led Monetary Policy Committee (MPC) had raised repo rate by 50 basis points for the third consecutive time in September meeting, taking the total quantum of hikes to 190 basis points since May to tackle high inflation.
The minutes are set to come in the backdrop of India's annual retail inflation accelerating to a five-month high of 7.41% in September, its ninth straight reading above the RBI's target. This could prompt the RBI to hike rates further.
Rising oil prices also had an impact on bond moves. The benchmark Brent crude contract was $93.90 per barrel as low levels of diesel inventory ahead of winter triggered buying.
India is one of the largest importers of crude oil and that has a direct impact on inflation.
Meanwhile, U.S. yields rose on Thursday after data showed consumer prices increased more than expected in September.
Futures on U.S. Fed fund point to the market having almost fully priced in a fourth consecutive 75 basis points rate hike in November. The Fed has already raised rates by 300 basis points since March.
