MUMBAI: Indian government bond yields were largely unchanged at the start of the week, as traders eyed moves in the 10-year US yield that hovered near a crucial technical level, and inflation data due later in the week.
The benchmark 7.26% 2033 bond yield was trading at 7.1639% at 10:00 a.m. IST on Monday. It ended the previous session at 7.1609%, highest level since April 20.
“There could be a slow and gradual move towards the next crucial level which is 7.20% this week, as all factors are pointing towards a bearish trend,” the trader said.
Indian bond yields climb as US peers break key levels; debt sale eyed
US yields remained elevated, with the 10-year yield near the key level of 4.08% as the latest data did little to change expectations of a rate hike by the Federal Reserve later this month.
Nonfarm payrolls increased by 209,000 jobs in June, below 225,000 forecasted by economists polled by Reuters and the smallest monthly gain in over two years. The unemployment rate slipped to 3.6% from 3.7% in May, indicating the labour market remains tight.
The report comes after the minutes of the Fed’s June meeting released last week reiterated that more rate hikes are coming. Traders now await June inflation data for more clarity on Fed’s stance. The odds of a 25 bps increase in July remain around 89%.
Traders also await India’s June retail inflation data due on Wednesday, and market expects the reading to remain around the previous month’s 4.25%.
The Reserve Bank of India maintained a status quo on policy rates in its previous two meetings after hiking by 250 bps in the last financial year, but now aims to meet the 4% inflation target which has pushed back bets of rate cuts.
Nomura said, the monetary policy is likely to focus more on underlying inflation, but a vegetable price-driven surge in the headline inflation could increase the policy trade-offs and risks delaying the first cut.
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