MUMBAI: Indian government bond yields trended lower at the start of the week tracking US peers, after Federal Reserve Chair Jerome Powell signalled that the central bank will most likely start cutting interest rates from September.
However, the fall in yields remained capped around the critical level of 6.85% given a lack of indication that the cut could be as much as of 50 basis points.
The benchmark 10-year yield was at 6.8477% as of 10:00 a.m. IST on Monday, compared with its previous close of 6.8591%.
“Some were expecting a break of 6.85% at the open, but it seems that has become a far more crucial level than what was initially expected, and may not be taken out this week,” trader with a state-run bank said.
US yields fell on Friday after Powell delivered his strongest signal that interest rates would be cut in September, saying a further cooling in the job market would be unwelcome, and expressing confidence that inflation is within reach of the Fed’s aim of 2%.
While a 25-basis-point cut in September is certain, the odds of a 50 bps move rose to around 40%, according to the CME FedWatch Tool.
India bonds not reacting to strong domestic growth, yields little changed
For 2024, the market is expecting rate cuts slightly above 100 bps, the tool showed.
Traders say the next set of non-farm payrolls and unemployment data would be the key trigger to move the needle towards a 25 bps or 50 bps move.
Last week, the Reserve Bank of India reiterated that rising food prices have prevented headline inflation from hitting the central bank’s 4% target, requiring status quo on rates.
Headline inflation impacts Indians directly and should be retained as the target for monetary policy rather than switching to core inflation, external members of the central bank’s rate panel told Reuters.
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