Indian bonds slide ahead of large auction as inflation runs hot

what happened

Selling hit India's sovereign debt early on Friday, with investors wary before a fresh offering of the benchmark security. According to Reuters, the 6.94% bond maturing in 2036 traded at a yield of 7.3113% at 10:00 IST, compared with 7.2467% the previous day. Yields have climbed more than 16 basis points across the last three sessions.

The government plans to sell 340 billion rupees ($3.62 billion) of that paper later today, which would lift total outstanding issuance of the bond to 2.72 trillion rupees, a record for any single security. Retail inflation in India accelerated to 6.09% in October from 5.54% in September, above a 5.93% forecast in a Reuters poll and the central bank's 4% medium-term target.

In the US, the 10-year Treasury yield moved above 5% after consumer price data came in hotter than expected and President Donald Trump said Washington had no need to reach a deal with Iran. Traders now put a 15% probability on a 50-basis-point Federal Reserve move on December 9, up from zero a week earlier.

why it matters

Firmer inflation combined with expectations of another Reserve Bank of India rate hike in early December makes the country's debt market sensitive to every auction. Higher yields mean lower bond prices, and a heavy supply calendar adds pressure on demand. Geopolitical tension that could keep oil prices elevated is another risk to the inflation outlook.

market impact

Indian government bonds and US Treasuries: higher yields pressure bond prices as the inflation outlook worsens

• ▼Indian government bonds pressure down — yields rose on sticky inflation and a large upcoming auction
• ▼US Treasuries pressure down — 10-year yield above 5% after hot inflation data and Iran-related remarks

tags

instruments