Bond yields little changed after Fed minutes, traders eye debt supply

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

By Dharamraj Dhutia

MUMBAI (Reuters) - Indian government bond yields ended largely unchanged on Thursday as the fall in oil prices was offset by relatively hawkish commentary from the Federal Reserve in the minutes of the latest meeting.

Market participants also stayed away, awaiting debt supply on Friday. New Delhi aims to raise 280 billion Indian rupees ($3.39 billion) through the sale of bonds, which includes 120 billion rupees of the benchmark paper.

The benchmark 10-year yield ended at 7.3271%, after ending at 7.3212% on Wednesday.

"The Fed minutes were evidently hawkish, and signalled a restrictive policy stance, albeit with smaller rate hikes continuing until credible softening of inflation is visible," said VRC Reddy, treasury head of Karur Vysya Bank.

"However, the steep fall in crude prices, weighed by recession fears and COVID-induced demand destruction in China, negated the pressure on yields."

The minutes of the Fed meeting showed policymakers still focussed on controlling the pace of price increases and worried about "misperception" in financial markets that their commitment to fighting inflation was flagging.

The Fed had raised rates by 50 basis points (bps) in this meeting, after four back-to-back 75-bps hikes. It raised rates by 425 bps in 2022.

Oil prices have been easing this week, with investors worried about fuel demand in China. The benchmark contract crashed by nearly 10% in the last two sessions, seeing its biggest single-day drop in four months on Wednesday.

It was last trading at $78.50 per barrel.

Oil prices have a direct impact on India's retail inflation as it is one of the largest importers of the commodity. The data for December is due next week and comes after the reading eased below 6% in November, a first in 11 months.

Barclays expects the reading at 5.96%, against 5.88% in November and the Reserve Bank of India target range of 2%-6%.

($1 = 82.7125 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman)