Yields down tracking easing US peers; state debt sale in focus

MUMBAI: Indian government bond yields were down in early trading on Tuesday, amid value buying from investors after yields on the US peers eased.
Trading volume is expected to remain lower in a holiday-shortened week, with focus on state debt sale.
The benchmark 10-year government bond yield was at 7.4673% as of 0430 GMT, after ending at 7.5121% on Friday. It rose four basis points last week, after advancing an aggregate 30 bps in the previous five weeks.
Meanwhile, states aim to raise at least $3.29 billion, through sale of bonds maturing in three to 29 years.
“The US yields, especially at the front end have come down, and that is having some positive impact on local bonds,” a trader with a primary dealership said. “But the benchmark yield should not go below 7.45%, and we may see lower volumes this week.”
Indian markets were shut on Monday and will remain closed on Wednesday due to local holidays, which may lead to lower-than-average trading volumes.
The 10-year US yield was at 4.21%, after rising to an over 14-year high of 4.33% on Friday. The two-year note was at 4.50%, after hitting an intra-day high of 4.64% on Friday.
The yields cooled off as the central bank shifted to a debate over how much higher it can safely push borrowing costs, with San Francisco Fed President Mary Daly saying on Friday it was time to start talking about “stepping down” from rate hikes.
Fed funds futures traders were pricing in an almost 100% probability of a 75 bps hike next week and an about 50% chance of another 75 bps increase in December. The chance of a 75 bps hike in December was seen at over 65% earlier in the month.
The Federal Reserve has already raised interest rates by 300 basis points since March. Traders fear that aggressive hikes may put pressure on the Reserve Bank of India to keep in step.

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