Indian bond yields seen tad lower as US peers fall further

MUMBAI: Indian government bond yields are expected to open marginally lower on Tuesday, as US yields eased more on expectations that the Federal Reserve may be nearing the end of its rate-hike cycle.

The benchmark 10-year yield is likely to move in a 7.31%-7.35% range, a trader with a private bank said.

The yield ended at 7.3427% on Monday. “We may see some more buying today, but the level of 7.30% will continue to remain a crucial bottom and is unlikely to be tested,” the trader said.

US Treasury prices gained further, with the 10-year yield testing the 3.50% level, on expectations of a halt to the fast-paced rising interest rates, even as the market faces a hawkish Fed.

The rally in Treasury prices comes after data showed US services activity contracted for the first time in more than 2-1/2 years in December, while wage growth also slowed.

Weaker economic data have raised bets that the Fed may slow down its pace of hikes from last year’s frenzied pace when it boosted interest rates by 425 bps.

The next key data point is US and India inflation data for December, which comes out on Thursday.

India’s retail inflation held steady in December, staying within the Reserve Bank of India’s (RBI) comfort zone for a second month as moderation in food price rises was partly offset by elevated core inflation, a Reuters poll of economists found.

Indian bond yields drop tracking US peers, 7.30% level stays key

The Jan. 4-9 poll of 45 economists put consumer price inflation at 5.90% in December from a year earlier, little changed from an eleven-month low of 5.88% in November.

The RBI aims to maintain inflation within the 2%-6% band.

Meanwhile, the benchmark bond yield could rise towards 7.45% in the new fiscal year as mounting supplies give investors a chance to enter the longer-duration segment, Anand Nevatia, a fund manager with Trust Mutual Fund said.

The fund manager expects net borrowing of around 11 trillion rupees ($133.87 billion) for the next financial year, while demand from banks may come down.