Bond yields seen little changed as traders eye fresh triggers

Indian government bond yields may remain largely unchanged in early session on Wednesday as traders wait for fresh triggers in the run-up to the Union budget announcement.

The benchmark 10-year yield (IN072632G=CC) could move in a range of 7.31%-7.35%, a trader with a private bank said. The yield ended higher at 7.3335% on Tuesday, the third consecutive session of rise.

There are no immediate triggers and bond yields should trade in a narrow range, while fears of elevated borrowing will continue to weigh, the trader said.

Bond yields have been rising recently, with traders anticipating another year of elevated debt supply, as the central government's gross borrowing jumps to a record high.

The federal budget will be tabled on Feb. 1 when focus will be on the government's fiscal consolidation path and its borrowing calendar for the next fiscal.

Morgan Stanley expects the government to gross borrow 16.10 trillion rupees ($197.23 billion) in the next financial year to meet fiscal deficit of 5.9% of gross domestic product.

"Without index inclusion and foreign demand, this would lead to domestic investors being the biggest buyer in the G-Secs market," the foreign brokerage said.

Traders will also keep an eye on the movement in oil prices that went up in the hope that a relaxation of China's strict COVID-19 curbs will lead to a recovery in fuel demand in the world's top importer.

The benchmark Brent crude contract has risen in six of the last seven sessions until Tuesday and was at $86.70 per barrel.

India is one of the largest importers of the commodity and its price has a direct impact on local retail inflation, which eased for the second month in December, but remained close to the upper end of the Reserve Bank of India's 2% - 6% target band.

KEY INDICATORS:

** Brent crude futures BRN1! up 0.9% at $86.67 per barrel, after easing 1.7% in previous session

** 10-year U.S. Treasury yield US10Y at 3.5550% and the two-year note (US2YT=RR) at 4.2047%

** RBI to auction Treasury Bills worth 300 billion rupees

($1 = 81.6300 Indian rupees)