INDIA BONDS-Bond yields may rise marginally ahead of state debt supply

Indian government bond yields could inch higher early on Tuesday, ahead of debt supply through the sale of state bonds. The benchmark 10-year yield is likely to move in a 7.31%-7.35%...

INDIA BONDS-Bond yields may rise marginally ahead of state debt supply

MUMBAI, Dec 27 (Reuters) - Indian government bond yields

could inch higher early on Tuesday, ahead of debt supply through

the sale of state bonds. The benchmark 10-year yield is likely to move

in a 7.31%-7.35% band, a trader with a private bank said. The yield ended at 7.3194% on Monday, its highest since Nov.

  1. The state debt supply is on the heavier side and since it is

towards the fag end of the quarter, there may be some uptick in

yields, the trader said. Indian states are aiming to raise 231.47 billion rupees

($2.80 billion) later in the day, by selling bonds maturing

between eight years and 19 years, and the quantum is largely as

per schedule. States have been borrowing far lesser through bonds compared

to their schedule this financial year, with a difference of

nearly two trillion rupees. Sentiment remains cautious as trading volumes continue to

slump in the last week of the calendar year, and may remain

tepid even on Tuesday, traders have said. Meanwhile, the 10-year U.S. yield stayed around 3.75%, while

the benchmark Brent crude contract was around $85 per barrel,

further adding to the cautiousness. Bond yields have seen an uptick since the Reserve Bank of

India highlighted inflation concerns going into 2023, despite

having raised the key interest rate by 225 basis points in 2022

in its battle to keep inflation within its mandate of 2%-6%. Still, India's bond yield curve looks attractive at the

shorter end as the interest rate tightening cycle is expected to

peak soon, while heavy debt supply in the new year could weigh

on the longer end, said Sudhir Agrawal, executive vice president

and fixed income fund manager at UTI Mutual Fund. "The long end of the curve is going to continue to have this

supply issue all around the year going forward, while the short

end of the curve is just a seasonal phenomenon." KEY INDICATORS: ** Brent crude futures up 0.9% to $84.70 per barrel,

after rising 3.6% in the previous session ** 10-year U.S. Treasury yield was at 3.7303%

and the two-year note at 4.3339% ** Thirteen Indian states to raise 231.47 billion rupees

through the sale of bonds ($1 = 82.6500 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Savio D'Souza)