INDIA BONDS-Bond yields ease on value buying, state debt supply eyed

MUMBAI, Jan 3 (Reuters) – Indian government bond yields
were lower on Tuesday amid value buying from long-term
investors, even as the broader focus stayed on the first weekly
auction of state debt due later in the day.

The benchmark 10-year yield was at 7.3211% as
of 10:00 a.m. IST, after ending at 7.3398% on Monday — its
highest since Nov. 10.

Long-term players like insurance companies and pension funds
have received inflows, a trader with a private bank said, adding
that with a lack of any major supply at the start of the new
year, some of that money was flowing into longer-duration
government bonds.

Many market participants also feel that the level of
7.35%-7.37% for the benchmark bond may not be broken on the
upside in immediate future, and hence entering at these levels
would be beneficial, traders said.

Traders are also waiting for the first state debt sale of
the year, wherein states plan to raise 134.96 billion rupees
($1.63 billion).

This is a part of their planned borrowing of 3.41 trillion
rupees for the current quarter, which is sharply higher than
market expectations of 2.70 trillion rupees to 3.00 trillion
rupees.

The larger state borrowing programme comes as market
participants keenly await the federal budget announcement to
gauge the borrowing plan for the next financial year.

The benchmark bond yield has stayed above the 7.30% mark for
the last few days, amid a lack of active interest from traders
as well as investors.

The benchmark bond yield is expected to remain in the range
of 7.30%-7.40%% in the current month, Dipanwita Mazumdar, an
economist with Bank of Baroda, said.

The 10-year U.S. yield continued to stay around 3.85%, while
the benchmark Brent crude contract was around $85 per barrel.
($1 = 82.7000 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Nivedita
Bhattacharjee)