Heavy supply schedule nudges govt bond yields higher as 2025 kicks off

Indian government bond yields inched marginally higher on the first day of the New Year on mild concerns over heavy supply during the January-March quarter.

The 10-year bond yield was at 6.7742 per cent as of 10:10 a.m. IST on Wednesday, compared with its previous close of 6.7597 per cent.

Indian states aim to borrow a record Rs 4.73 trillion ($55.23 billion) through the sale of bonds in the three months to March-end, against market estimates of about Rs 4 trillion.

The federal government is expected to borrow Rs 2.79 trillion during the quarter.

"Market was sort of not prepared for such a large borrowing figure and hence we are seeing an immediate reaction. However, with trading desks thinly manned, any scope for a larger move can be safely ruled out," trader with a state-run bank said.

 

In 2024, the 10-year yield eased 42 basis points, its biggest fall in four years, as the government's fiscal discipline and inclusion of debt in global indexes boosted demand.

Investors await the start of the domestic rate easing cycle in 2025. The Reserve Bank of India may cut interest rates as early as February.

Meanwhile, the 10-year U.S. bond yield rose for fourth straight year and posted a rise of over 70 basis points in 2024. [US/]

Broader market sentiment remained cautious as the Federal Reserve has lowered its rate cut forecast for 2025 to 50 basis points from 100 bps earlier.

The odds of a Fed pause in January are at 90 per cent, according to CME's FedWatch Tool.