MUMBAI: Indian government bond yields traded lower in early session on Thursday as US yields resumed their downward trend and odds of a status quo in the Federal Reserve’s policy meeting next week rise. The 10-year benchmark 7.26% 2032 bond yield was at 7.3325% as of 10:00 a.m. IST after closing higher at 7.3620% on Wednesday.
“Since Indian markets are closely tracking US Treasuries, the direction is similar, but the magnitude will not be the same as we still have elevated inflation pressures,” a trader said.
US yields slumped on Wednesday after liquidity problems at Credit Suisse stoked fears about the impact of rising yields on the global banking sector, while US retail sales fell 0.4% in February. The development comes after the collapse of Silicon Valley Bank, which raised bets that the Fed may pause its rate hike cycle.
The two-year yield, which is a closer indicator of interest rate expectations, dropped to 3.72%, its lowest since September on Wednesday, while the 10-year yield fell to 3.39%.
The moves come ahead of the Fed’s policy decision, due on Wednesday.
Fed funds futures are now pricing in a 65% chance for a 25 basis point (bps) hike in March and 35% for rates being left unchanged.
Falling oil prices will also aid sentiment as India is one of the largest importers of crude and prices have an impact on inflation.
Indian bond yields little changed as retail inflation dents mood
India’s retail inflation was at 6.44% in February, above the central bank’s target for the second consecutive month, which increased bets of another rate hike in April.
However, traders said that a pause by the Fed could lead to similar action by the Reserve Bank of India.
Meanwhile, the Indian government’s borrowing for April-September is likely to be between 55% and 58% of its gross borrowing target for the next fiscal, according to two government officials. India aims to raise 15.43 trillion rupees through the sale of bonds in the next financial year.
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