MUMBAI: Indian government bond yields inched up on Monday, mirroring trends in the US markets, after key data from the world’s largest economy made traders bet that the Federal Reserve would only opt for a small rate cut in its September meeting.
The benchmark 10-year yield was at 6.8722% at 10:30 a.m. IST compared with its previous close of 6.8647%.
US Treasury yields rose on Friday after the Commerce Department said personal consumption expenditure price index rose 0.2% in July, matching expectations of economists polled by Reuters, after an unrevised 0.1% gain in June.
The 10-year US Treasury yield was higher at 3.91% in Asian hours.
Markets are fully pricing in a rate cut of at least 25 basis points at the Fed’s mid-September meeting.
Expectations for a 50 basis point cut dipped to 30.5% after the data from 34% in the prior session, according to CME’s FedWatch Tool.
The next key trigger will be the US jobs data, due later this week.
That will determine the size of the Fed rate cut at this month’s meeting.
Fed Chair Powell had last month signaled a shift in the Fed’s focus towards the job market.
India bonds not reacting to strong domestic growth, yields little changed
In India, economic growth slowed to 6.7% year-on-year in the April-June quarter as a decline in government spending during national elections weighed, data showed on Friday, but it remained the world’s fastest-growing major economy.
“With business and consumer surveys showing deterioration in confidence, the Reserve Bank of India (RBI) will likely factor in growth indicators more closely in its monetary decisions,” economists at Barclays said in a note.
“We continue to expect the central bank to embark on rate cuts from December, when it would have clarity on the food inflation outlook, and another GDP print (for Q2 FY24-25, in November) to confirm the trend in economic activity.”
Market participants also await Tuesday’s weekly auction, where 11 states aim to raise 205.5 billion rupees ($2.45 billion) via sale of bonds.
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