Bond yields largely unchanged ahead of debt sale in low-volume session

A cashier checks Indian rupee notes inside a room at a fuel station in Ahmedabad

By Bhakti Tambe

MUMBAI (Reuters) - Indian government bond yields ended largely unchanged in the second-last trading session of 2022, as most market participants refrained from placing large bets ahead of the weekly debt auction and on a lack of significant cues before year-end. The 10-year benchmark bond yield ended at 7.3114%, after closing at 7.3136% on Wednesday.

New Delhi aims to raise 300 billion Indian rupees ($3.62 billion) through the sale of bonds on Friday.

"Till budget, I see yields remaining largely in the same vicinity and will track U.S. yields, crude oil and future inflation," Dwijendra Srivastava, chief investment officer-debt at Sundaram Mutual Fund said.

"We could see yields in a broad band of 7.25%-7.50% till then."

During the day, yields fell marginally, tracking a fall in oil prices and U.S. yields but recouped amid lower trading volumes.

The benchmark crude contract eased 1.6% to $81.40 per barrel, as surging COVID-19 cases in China dimmed hopes of a recovery in fuel demand for the world's largest crude oil importer. Whereas, the 10-year U.S yield was down by 4 basis points to 3.8447% after gaining in the last three sessions.

The yield had dropped to 3.40% earlier in the month on bets of a policy pivot from the Federal Reserve, but hawkish commentary and hints of continued rate hikes from the Fed have led to sharp rises in yields. A majority of foreign and domestic banks were absent from the market and the overall thin volume led to muted yield movement during the session, said a trader with a private bank. While the volume is expected to recover next week due to the end of the holiday season as market participants will join back, most traders see the union budget as the next key trigger for the market. The market is now awaiting fresh cues from the new calendars for state debt and Treasury bills, scheduled for release by the end of this week.

($1 = 82.8025 Indian rupees)

(Reporting by Bhakti Tambe and Dharamraj Dhutia; Editing by Janane Venkatraman)