MUMBAI: Indian government bond yields are likely to open lower in the early trading session on Thursday, tracking a plunge in US peers, after the US Federal Reserve’s indication that its policy tightening is over and rate cuts are looming.
The 10-year benchmark bond yield is expected to open in the 7.18-7.23% range, following its previous closing at 7.2581%, a trader with a primary dealership said.
“The Fed was substantially dovish and that surprised markets.
The global euphoria could lead to breakout in key 7.20% level at the open but unlikely to sustain at those levels because domestic factors haven’t changed much,“ said Yogesh Kalinge, vice president at A.K. Capital Services.
The 10-year US yield fell to its lowest since August, led by a near-unanimous projection of 17 out of 19 Fed officials that the policy rate will be lower by the end of 2024.
The median projections now indicate a decline of three-quarters of a percentage point from the current 5.25-5.50% range for the Fed funds rate.
“People are not writing down rate hikes” in their latest economic projections, Fed Chair Jerome Powell said following the end of the central bank’s final policy meeting of the year.
The Fed has increased its policy rate by 525 basis points to the current range of 5.25%-5.50% since March 2022.
“Fed’s rate cut signals would not alter the Reserve Bank of India’s rate cut expectations,” Kalinge said.
India bond yields seen lower tracking US peers; fall in oil prices to aid
However, the outlook for RBI rate cuts in Jul-Sept is likely to become bullish, he added.
Last week, the RBI kept its key repo rate unchanged at 6.50%, for the fifth consecutive meeting.
Meanwhile, oil prices increased following a larger-than-expected weekly drawdown from US crude storage and Fed policy outcome.
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