MUMBAI: Indian government bond yields are expected to move higher in early deals on Thursday, tracking US Treasury yields, after hotter-than-expected US inflation bolstered bets of fewer rate cuts in the world’s largest economy.
The benchmark 10-year yield is likely to move between 6.69% and 6.73%, a trader with a private bank said, compared with its previous close of 6.7022%.
Data on Wednesday showed that the consumer price index (CPI) gained 0.5% in January, exceeding estimates for a 0.3% increase, and posting the biggest monthly advance since August 2023.
On a year-on-year basis, CPI rose 3% compared with expectations of a 2.9% increase.
“The US inflation readings have comes as a surprise and it shows it will remain sticky in the near term, which could further push away the next phase of rate easing at a time when global markets are dealing with tariff risks,” a trader said.
US yields jumped overnight following the data, with the 10-year yield hitting a three-week high. Markets have now priced in about 29 basis points of US rate easing for the rest of this year, down from 35 bps before the data was released.
Back home, retail inflation in January eased to a five-month low of 4.31% from 5.22% in December and was below economists’ estimates of 4.6%.
Still, the rise in domestic yields will be capped as the Reserve Bank of India prepares to buy bonds later in the day and infuse funds in the banking system through yet another longer duration repo on Friday.
India bond yields seen easing after central bank doubles debt buy
The central bank will buy securities of up to 400 billion rupees ($4.60 billion) on Thursday and conduct a 49-day repo for 750 billion rupees a day later.
The RBI has bought bonds worth 588.35 billion rupees through auctions and secondary purchases, infused 500 billion rupees through a 56-day repo and around 440 billion rupees via a dollar/rupee swap in the last one month.
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