MUMBAI: Indian government bond yields opened largely unchanged on Monday as the benchmark bond yield consolidated around the 7% handle, with an eye on U.S. Treasuries on the back of rising bets for another rate hike by the Federal Reserve.
The 10-year benchmark 7.26% 2033 bond yield was at 7.0053% as of 10:00 a.m. IST, after closing at 7.0081% in the previous session.
“The move in U.S. yields is taking the centre stage slowly but surely and local yields should trend sideways on Monday,” a trader with a primary dealership said.
U.S. yields continued their upward momentum on expectations the Fed will hike interest rates again in either June or July after consumer spending data showed annual inflation rose slightly last month.
The personal consumption expenditures (PCE) price index, excluding food and energy, increased 4.7% on-year after gaining 4.6% the prior month. The Fed closely tracks PCE, a major gauge for inflation.
The 10-year U.S. yield was at 3.82% and rose 13 basis points last week, after rising 23 bps the previous week. The two-year yield, considered a closer indicator of interest rate expectations, was at 4.59%, up 30 bps last week following a 29-bps jump in the week ended May 19.
Indian bond yields seen tad higher, US Treasury moves in focus
U.S. President Joe Biden and top congressional Republican Kevin McCarthy have reached a tentative deal to raise the government’s $31.4 trillion debt ceiling, which will also be a key trigger for debt markets.
This development along with strong data has pushed the odds of another 25-bps hike on June 14 to 60%, up from 40% last week and nearly 5% at the beginning of May.
Back home, markets await the release of India’s growth data for January-March and the previous financial year. A Reuters poll of economists predicted the reading at 5% on-year, up from 4.4% in October-December.
The data could also provide some clarity on the thinking of the RBI when it announces its monetary policy next week.
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