MUMBAI: Indian government bond yields are expected to decline in the early session on Thursday, tracking U.S. peers, after the country’s inflation data suggested that the U.S. Federal Reserve will pause its rate hike cycle.
The 10-year benchmark 7.26% 2033 bond yield is expected to be in the 7.00% to 7.06% range, a trader with a private bank said, after closing at 7.0405% in the previous session.
“While Fed’s pause is likely sooner than later, evidence of cuts is not visible yet. After the recent pause, RBI is likely to hike one more time if Fed’s cut is not in sight,” said Anitha Rangan, an economist at Equirus.
Fed funds futures are currently pricing in a 94.6% likelihood of a pause in the June meeting from around 82% on Wednesday. The Fed fund rate currently stands at 5.00-5.25%.
Last week, the Fed hiked rates by 25 basis points (bps), as expected, but hinted at a pause in its monetary policy tightening cycle.
U.S. Treasury yields fell on Wednesday, as the April consumer price data came in roughly in line with economists’ expectations, a relief to some investors who were concerned that price pressures may have been stronger than expected.
“After the U.S. data, market remains a buy on dips and broadly a pause is priced in. Now supply demand dynamics will kick in slowly leading to steepening again in few weeks,” the trader said.
India’s benchmark bond yield is expected to find a strong resistance at 7% as broader market expectations remain the same, a trader with a foreign bank said.
“There’s a scope for some sharp movement in yields if local inflation throws a positive surprise.”
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