Indian bond yields seen steady at start of quarter’s last week

MUMBAI: Indian government bond yields are likely to be largely unchanged at the start of this quarter’s last week, as traders await fresh triggers after the benchmark bond yield slipped back below its key technical level.

The benchmark 7.26% 2033 bond yield is expected to be in the 7.04%-7.08% range on Monday, after closing at 7.0726% in the previous session, a trader with a primary dealership said.

“For the week, the technical level of 7.08% should act as a support, after it was clearly visible last week that traders were not comfortable with its breach without any new major trigger,” the trader said.

Bond yields ended lower on Friday, after traders resorted to short covering on better-than-expected demand for liquid 14-year bond at debt sale.

This also led to benchmark yield easing below 7.08%. Still, the market remains concerned over hawkish commentary from Indian and US central banks, and would keenly eye crucial data in both the countries to gauge interest rate movements.

Members of India’s six-member monetary policy committee (MPC) appeared increasingly divergent in their views on the future course of interest rate hikes, but all three internal members reiterated the pause was only for June.

A narrower interest rate differential with the US is unlikely to prompt the MPC to raise rates, but a rebound in inflation certainly could, three external members said in separate interviews.

India bond yields edge up before RBI minutes, OIS inches higher

In June, the RBI kept its key lending rate steady for a second straight meeting, but signalled monetary conditions will remain tight for some time as it looks to attain the 4% inflation target.

Bringing down inflation, as well as market and household expectations of future inflation would be key to reviving private capital expenditure, the RBI said in its monthly bulletin.

Earlier this month, the US Federal Reserve kept interest rates unchanged but warned of a half-percentage point hike in 2023.

The odds of a rate hike in July stand at around 72%. Last week, Fed Chair Jerome Powell that suggested interest rates could go higher as the central bank grapples with stubbornly high inflation.