(Reuters) - Indian government bond yields ended higher in the first trading session of 2023, with the benchmark bond yield at a near two-month high after states announced a bigger-than-expected borrowing schedule.
The benchmark 10-year yield ended at 7.3398% on Monday, the highest since November 10, after ending at 7.3277% on Friday. The move comes after the benchmark yield jumped 87 basis points in 2022, its biggest such move since 2009.
"State debt supply has surprised on the upside, which has further pushed yields upwards, said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership, adding that borrowing fears would continue to impact yields in the run up to the federal budget due in February.
Indian states plan to raise 3.41 trillion rupees($41.22 billion) by selling bonds in 13 weekly auctions between January and March. The supply is sharply higher than market expectations of 2.70 trillion rupees to 3.00 trillion rupees.
States had borrowed 4.57 trillion rupees between April and December, lower than the scheduled 6.55 trillion rupees, and a sudden spike in issuance may see crowding out in the last quarter of the financial year, traders said.
Bond market participants also await headline retail inflation data due next week.
Inflation had eased below 6% in November, first such reading in eleven months. However core inflation stayed above 6%.
The Reserve Bank of India has highlighted concerns over sticky core inflation, and market expects the central bank to hike repo rate by another 25 basis points in February, after hiking rates by 225 bps in 2022.
Foreign banks may largely stay on the sidelines after emerging as buyers of government bonds for second straight quarter in October-December and also posting their biggest such purchase in over three years.
"Budget announcement remains the key, and bond yields may remain in thin range till then," ICICI Securities Primary Dealership's Upadhyay said.