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MUMBAI: Indian government bond yields were largely unchanged in early session on Wednesday as investors awaited inflation readings to gauge further moves from Indian and US central banks.

The benchmark 10-year yield was at 7.3218% as of 10:00 a.m. IST, after ending at 7.3133% on Tuesday.

It had fallen six basis points (bps) in the previous two sessions, tracking a slump in US yields.

“After two days of rally in bonds, we are finally taking a breather as the current levels do not attract fresh buying and any major move may be seen only after inflation data,” a trader with a private bank said.

December retail inflation reports of both the countries are due on Thursday.

The US reading comes amid expectations that the Federal Reserve may slow down its pace of rate hikes after weak economic data that also led to a drop in US yields.

Indian bond yields seen tad lower as US peers fall further

The Fed has raised interest rates by 425 bps in 2022 and is set to take the same above 5% in 2023. India’s retail inflation for December is likely to remain steady at 5.90%, after easing to 5.88% in November, a Reuters poll of economists showed.

The Reserve Bank of India is mandated to keep inflation within the 2%-6% band. The RBI had raised the repo rate by 225 bps in 2022 to 6.25% and is set to hike it again in February, which, traders expect, could be followed by a prolonged pause.

Focus also remains on the Union budget due on Feb. 1, when traders will assess the government’s fiscal consolidation path and borrowing for the next financial year.

DBS expects the government to announce gross borrowing of 15.50 trillion rupees ($189.58 billion), with a fiscal deficit aim of 5.9%, sharply higher than 14.21 trillion rupees for the current fiscal.

Further, the central government will raise 300 billion rupees through the sale of bonds on Friday, while the RBI will auction Treasury Bills worth a similar amount later that day.

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