India bond yields steady on eve of index inclusion
By Dharamraj Dhutia
MUMBAI, June 27 (Reuters) -Indian government bond yields ended little changed on Thursday, on the eve of index inclusion, with traders pointing to some inflows supporting the debt, despite a spike in Treasury yields.
The benchmark 10-year yield IN071034G=CC ended at 6.9992%, following its previous close of 7.0000%.
India's debt will be included in JPMorgan's widely tracked emerging market debt index from Friday, ahead of which foreign investors are snapping up bonds that will be added to the index, and this has attracted flows of more than $10.50 billion into notes under the fully accessible route.
Some indicators in India's foreign exchange markets pointed to foreigners, potentially passive funds, buying bonds during the day, with major flows expected on Friday.
"Foreign investor inflows into government bonds are underway since the announcement of index inclusion in September and we expect them to pick up from July onwards," said Nagaraj Kulkarni, co-head for Asia rates strategy (ex-China) and head - flows strategy at Standard Chartered Bank.
While foreign investors have been choosing longer-duration papers over the last few weeks, foreign banks have bought over $5 billion of bonds so far in June on a net basis.
Still, JPMorgan strategists have said 32%-40% of expected $20-25 billion of flows have already played out, while Morgan Stanley said investors have allocated 3.6% of holdings to the country's bonds as of the end of May.
U.S. yields rose, after inflation in other countries picked up, with investors fearing a similar trend in the world's largest economy when it reports a key inflation gauge on Friday.
The 10-year U.S. yield US10YT=RR was just shy of the key technical level of 4.35%, a break of which could lead to a sharp rise, according to traders.
New Delhi will sell bonds worth 310 billion rupees ($3.85 billion) on Friday, which also includes the benchmark bond.
($1 = 83.4448 Indian rupees)
Reporting by Dharamraj Dhutia; Editing by Sohini Goswami
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