India bonds steady after selloff; inflation data in focus

MUMBAI: Indian government bonds were steady in early deals on Wednesday following a selloff in the previous session and as traders await US and India inflation data.

The yield on the 10-year benchmark was at 6.4978% as of 10:20 a.m. IST.

It closed at 6.4942% on Tuesday.

Market sentiment was upbeat on Tuesday after India’s Finance Minister Nirmala Sitharaman told local media that the government is confident about meeting its fiscal deficit goal and will not alter its borrowing plan.

Despite the positive news, the 10-year yield failed to fall below 6.43%, a key technical level, which triggered profit booking. Traders are now awaiting inflation data from the US and India for cues on the central banks’ interest rate trajectories.

“The market has already played out to the triggers that occurred over the last few days. There could be some reaction only after US inflation data, which will guide us on whether US rates will be cut twice or thrice in 2025,” a trader with a primary dealership said.

Global markets are fully pricing in a 25-basis-point reduction at the Federal Reserve’s meeting next week, with the odds of a 50-bp cut at about 8%, according to CME Group’s FedWatch Tool.

The Fed’s decision could become complicated if the CPI report comes in hotter than the 0.3% expected by economists polled by Reuters and the 0.2% rise in July, especially as the US labour market is showing signs of weakness.

In India, inflation likely rose to 2.1% in August, from 1.55% in July, with the “base effect” fading and food prices rising, according to a Reuters poll.