MUMBAI: Indian government bond yields were marginally lower on Monday, mirroring US peers, while the rescue of a European lender and dipping odds of a rate hike by the Federal Reserve this week further aided sentiment.
The 10-year benchmark 7.26% 2032 bond yield was at 7.3361% as of 10:00 a.m. IST, after closing at 7.3511% on Friday.
The yield fell eight basis points last week, its biggest drop in six. “Since US yields are below key levels, there is some psychological advantage,” a trader with a state-run bank said.
“However, major moves could be visible only after the Fed’s policy decision.” On Sunday, the UBS Group AG sealed a deal to buy Credit Suisse for $3.23 billion, a historic move that was followed by global central banks assuring markets of adequate dollar liquidity via standing swap lines.
The deal is backed by a Swiss guarantee and is expected to close by the end of 2023. Major central banks, including the Fed and the European Central Bank, released statements to reassure markets.
The Fed offered daily currency swaps to ensure banks in Canada, Britain, Japan, Switzerland and the euro zone have the dollars needed to operate.
The move came ahead of the Fed’s policy decision due on Wednesday.
Fed funds futures are now pricing in a 45% chance for a 25 basis-point hike and 55% for rates being left unchanged.
Indian bond yields little changed ahead of state debt sale
The odds for a 25 bps hike had increased to over 80% last week.
The 10-year US yield was at 3.44%, while the two-year yield, a closer indicator of interest rate expectations, was at 3.88%.
Back home, traders will also await the borrowing calendar for April-September, which is likely to be announced next week, followed by the Reserve Bank of India’s monetary policy decision the week after.
Traders said if the Fed goes ahead with a rate hike on Wednesday, the RBI is likely to increase rate for a seventh consecutive time to 6.75%.
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