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MUMBAI: Indian government bond yields eased in the first trading session of the week, tracking a fall in US peers on Friday after economic data in the world’s largest economy prompted bets of a slower pace of rate hikes by the Federal Reserve.

The benchmark 10-year yield was at 7.3361% as of 10:00 a.m. IST on Monday, after ending at 7.3736% on Friday, its highest level since Nov. 9.

“There is some positivity in sentiment returning after a sharp downmove in US yields, but any major fall from this point is not on the cards and 7.30% will continue to act as strong bottom,” a trader with a state-run bank said.

US yields tumbled on Friday, as wages rose less than expected last month and new jobs increased more, while the US services sector shrank for the first time in more than 30 months.

The Institute for Supply Management’s (ISM) non-manufacturing index dropped to 49.6 last month from 56.5 in November, the first time since May 2020 that the services reading fell below the 50 threshold, indicating contraction.

The 10-year US yield fell 15 basis points and was at 3.56%, while the two-year yield slumped 19 bps and was at 4.26%. Weaker economic data has raised bets that the Federal Reserve may slowdown its pace of rate hikes, after raising the same by 425 bps in 2022.

The US data will be followed by December inflation reading due on Thursday, which will further provide clarity on the Fed’s interest rate trajectory.

Locally, traders will also eye India’s December inflation print due this week and the federal budget announcement, due on Feb. 1.

Indian bond yields ease on value buying, state debt supply eyed

Inflation eased to 5.88% in November, coming in below the central bank’s upper tolerance level of 6% for the first time in 11 months. However, core inflation stayed above 6%.

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