INDIA BONDS-India bond yields seen little changed before state debt supply

MUMBAI, Aug 1 (Reuters) – Indian government bond yields
are expected to trade largely unchanged in early session on
Tuesday as traders await fresh supply of debt from states, while
the recent rise in yields will keep them cautious.

The benchmark 7.26% 2033 bond yield is likely
to be in the 7.15%-7.19% range after ending the previous session
at 7.1746%, a trader with a state-run bank said.

The yield rose for a second consecutive month in July and is
now up by an aggregate of 19 basis points in June-July.

Indian states aim to raise 195 billion rupees ($2.37
billion) through the sale of seven-year to 30-year bonds, with
the amount being largely in line with the calendar.

“Market is eyeing 7.20% on the benchmark this week, and till
then, we do not expect any major bullish move to catch in,” the
trader said.

Local bond yields have been rising rose tracking a spike in
U.S. yields, with the 10-year paper crossing the 4% mark, and
still hovering around that level.

Even as the market believes that the Federal Reserve’s rate
hiking cycle is done, there is a broad consensus that rates will
remain elevated for a longer period, which has further
strengthened the bears. The odds of a rate hike in September are
just 20%.

Back home, traders continue to worry that local inflation is
expected to rise sharply in July, which could force the Reserve
Bank of India (RBI) to opt for a hawkish stance in the upcoming
monetary policy review on Aug. 10.

HDFC Bank expects the benchmark bond yield to trade in
7.10%-7.25% range in the near-term, with balance of risks tilted
towards the higher end of the range.

India’s retail inflation jumped to 4.81% in June, after
easing for four months. Economists estimate inflation topped 6%
in July, breaching the upper end of the RBI’s medium-term
target.
KEY INDICATORS:
** Brent crude futures was down 0.4% at $85.25 per
barrel, after rising 14.2% in previous month
** 10-year U.S. Treasury yield at 3.9648%, two-year
yield at 4.8787%
** Nine Indian states aim to raise 195 billion rupees through
the sale of bonds
($1 = 82.2290 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Nivedita
Bhattacharjee)