MUMBAI: Indian government bond yields declined on Wednesday, tracking a sharp fall in US peers, as traders anticipated a policy pivot from the US Federal Reserve after delivering a rate hike later in the day.
A sharp fall in oil prices further improved inflation outlook, cementing bets that the US central bank will maintain a prolonged pause.
The 10-year benchmark 7.26% 2033 bond yield was at 7.0500% as of 10:15 a.m. IST, after closing at 7.0924% in the previous session. Earlier in the day, it had fallen to 7.0440%, its lowest since April 26, 2022.
“Global fundamentals are driving the current rally, and locally also, there are no teething issues which should bother the market for the time being,” a trader with a private bank said.
US Treasury prices rose, with yields dipping below key levels on concerns that the banking turmoil is not yet over after regulators seized First Republic Bank and sold its assets to JPMorgan Chase & Co, in a deal to resolve the largest US bank failure since the 2008 financial crisis.
The 10-year yield dropped below the 3.45% handle, while the two-year yield, which is a closer indicator of interest rate expectations, declined below the crucial 4% mark.
Bets have strengthened that the Fed will reverse its interest rate-hiking course sooner than expected, amid a wide sell-off in regional bank stocks and signs that government funds will run short by June.
Indian bond yields rise tracking US peers, Fed meet eyed
The Fed’s policy decision is due later in the day, wherein a 25 basis points rate hike is widely factored in, and the focus would be on Chair Jerome Powell’s comments.
Odds of a rate cut as early as July policy have risen to around 40%, while majority expect a status quo in the June policy.
Meanwhile, the benchmark Brent crude futures contract slumped 5% on Tuesday, on concerns about the US economy. It was last around $75 per barrel.
Apart from the Fed meet, the focus would remain on the weekly debt auction through which the central government aims to raise 330 billion rupees ($4.04 billion) on Thursday, which includes 140 billion rupees of the benchmark 2033 paper.
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