MUMBAI: Indian government bond yields are expected to be largely unchanged at the start of the week as market participants await local inflation data later in the day and the inflation print in the world’s largest economy on Wednesday.
The benchmark 10-year yield is likely to move between 6.86% and 6.90% on Monday, compared to its previous close of 6.8812%, a trader with a private bank said.
“Even though local inflation is unlikely to have any major impact, investors would want to get past it before building positions for US retail inflation, which would be a major guide for interest rates,” the trader said.
India’s July retail inflation will be published after market hours on Monday, and a Reuters poll predicts it to ease below Reserve Bank of India’s 4% target for first time in nearly five years.
Inflation likely rose at an annual rate of 3.65% last month, down sharply from 5.08% in June, as rising food costs and hikes in telecom tariffs were offset by a higher base from July 2023.
“The sensitivity from telecom tariff hike is seen staggered on CPI over next three months starting from August,” said Siddharth Kothari, an economist with Sunidhi Securities.
The RBI last week kept the key interest rate unchanged, retaining its focus on bringing inflation down even as global market volatility left other major central banks poised to ease.
India bonds not reacting to strong domestic growth, yields little changed
Meanwhile, the 10-year US bond yield consolidated around 3.95%, after a volatile week that saw the yield crashing to a more than one-year low of 3.67% amid recession fears in the US.
The market is almost equally divided between expectation for a 25 basis points and 50 bps rate cut from the Federal Reserve in September, compared to 100% expectation of a 50 bps move early last week, as per the CME FedWatch tool.
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