India bond selloff may continue as Treasury rout, fresh debt sale hurt

Indian government bonds are expected to face selling pressure on Friday as US Treasuries continue to sell off, and traders prepare for a large supply of benchmark securities in the weekly auction. The yield on the 6.94 percent 2036 bond is anticipated to fluctuate between 7.23 percent and 7.28 percent, according to a private-bank trader, after closing at 7.2467 percent on Thursday.

The Indian government is set to issue ₹34,000 crore ($3.62 billion) of the benchmark 2036 paper later in the day, increasing its total outstanding issuance to ₹2.72 lakh crore, the highest for any security. Traders anticipate some caution in bidding, with significant moves likely occurring only after the auction cutoffs. US Treasury yields surged on Thursday due to President Donald Trump's statement that the US does not require an agreement with Iran, as investors considered the possibility of a larger-than-anticipated Federal Reserve rate increase in December.

October's consumer-price data exceeded expectations, prompting traders to increase their bets on a more substantial rate hike on December 9. The 10-year US yield soared above the 5 percent mark and remained elevated in Asian trading hours, with traders assigning a 15 percent probability to a larger-than-expected 50-basis-point rate increase, up from zero just a week ago.

High oil prices have further fueled inflation concerns, which have surpassed the Federal Reserve's 2 percent target for over six years. In India, annual retail inflation surged to 6.09 percent in October from 5.54 percent in September, exceeding a Reuters poll estimate of 5.93 percent. The Reserve Bank of India, which raised its key rate for the first time in nearly four years in October, is expected to impose another hike in early December. Overnight index swap rates have been trending upwards, following the rise in Treasury yields.