Key Takeaways
- Indian government bonds are expected to fall sharply due to rising US Treasury yields.
- The 10-year US Treasury yield has reached its highest level in nearly two decades.
- India is set to sell 340 billion rupees worth of bonds amid market concerns.
Indian government bonds are set for a significant drop on Friday, following a relentless rise in US Treasury yields. The benchmark 6.94% 2036 bond is expected to trade between 7.10% and 7.15%.
A trader with a primary dealership stated, 'It will be a blood bath today, and confidence of bulls would be tested.'
The surge in US Treasury yields, driven by Federal Reserve officials' comments on further rate hikes, has deepened the debt's recent decline. The 10-year Treasury yield has reached its highest level in nearly two decades, while the 30-year yield has touched its highest since 2004.
Traders now see a 67% chance of another rate increase in October and a 57% probability of a December hike, according to CME Group’s FedWatch Tool.
The US Federal Reserve raised rates last week for the first time since 2023 to control inflation, adding to market uncertainties.
Oil prices remain elevated, with the benchmark Brent crude contract trading around $105 per barrel. This is particularly concerning for India, which imports about 90% of its crude oil needs, as higher prices raise inflation concerns and expectations of a domestic rate increase.
India is set to sell benchmark paper worth 340 billion rupees later in the day, adding to the supply of domestic debt and putting further pressure on bond prices.
The August retail inflation in India stood at 4.82%, with rate hike bets hardening after the Fed's move, leading to increased market volatility.
It will be a blood bath today, and confidence of bulls would be tested.
A trader with a primary dealership, Trader
