MUMBAI: Indian government bonds yields inched higher on Monday, tracking US Treasury yields, with focus squarely on the Federal Reserve’s monetary policy decision this week.
The benchmark 10-year yield was at 6.7367% as of 10:00 a.m. IST, compared with its previous close of 6.7282%.
“Benchmark bond yield is expected to remain stuck between narrow range of 6.72%-6.74% for now, and break of either side would be dependent on further moves in Treasury yields, especially after the Fed decision” the trader said.
US yields rose on Friday, with the 10-year yield hitting its highest level in three weeks.
The yield stayed around 4.40% in Asia hours.
Treasury yields rose after US November inflation data came in line with estimates, cementing a rate cut by the Fed on Wednesday, but making the outlook for the next year bleak.
The odds of a 25 basis point rate cut this week have jumped to over 97%, while odds of a cut in January are at just 17%, according to the CME FedWatch Tool.
The US central bank has cut interest rates by 75 bps since September.
Even though policymakers have stated that recent uptick in inflation is part of the bumpy path to a lower reading, analysts expect the Fed to be cautious.
India bond yields trapped in narrow range before inflation data
Meanwhile, India’s retail inflation eased to 5.48% in November from a 14-month high of 6.21% in October, raising bets of a rate cut from the Reserve Bank of India (RBI) in February.
The minutes of the RBI’s December meeting are due by the end of this week and may provide more clarity on policymakers’ thinking about the interest rate trajectory.
The central bank had maintained status quo on rates in this meeting, but infused liquidity through cut in banks’ cash reserve ratio.
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