MUMBAI: Indian government bond yields are set to fall at the open on Thursday, tracking a decline in US Treasury yields after President Donald Trump announced new reciprocal tariffs, while investors await a debt purchase by the domestic central bank.
The benchmark 10-year bond yield is likely to move between 6.45% and 6.50%, a trader at a private bank said, compared with the previous close of 6.4806%, the lowest since January 3, 2022.
The 10-year bond yield posted its biggest one-day drop since May 3, 2023 on Wednesday, after the Reserve Bank of India (RBI) announced yet another open market purchase plan for the first month of this financial year.
“Bonds should largely ignore the tariff-related negative news as the main drivers are demand-supply dynamics as well as bets of a dovish central bank monetary policy,” a trader said.
“In fact, the fall in US yields is a positive for local bonds and the benchmark bond yield could touch fresh lows.”
The RBI will buy bonds worth 800 billion rupees ($9.33 billion) in April, in four tranches of 200 billion rupees each, with the first tranche due later in the day.
This comes after the central bank injected durable liquidity worth over 5 trillion rupees into the banking system from January to March.
India bond yields seen easing after central bank doubles debt buy
On Wednesday, Trump slapped 26% tariffs on imports from India, effective from April 9, part of his plan to place duties on all US imports.
US yields dropped after the move, with the 10-year yield declining to its lowest level in nearly six months.
Interest rate futures are pricing in slightly more than 75 basis points of rate cuts from the Federal Reserve in 2025.
Macquarie expects a downside risk to the growth projection of 6.7% by the RBI for the current financial year due to risks from the ongoing trade war.
The central bank’s policy decision is due next Wednesday, with many expecting yet another rate cut.
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