MUMBAI: Indian government bond yields were largely unchanged in the early session on Wednesday, as market participants awaited crucial US and domestic retail inflation data, due later in the day, for further cues on interest rates.
The benchmark 7.26% 2033 bond yield was at 7.1007% as of 10:00 a.m. IST, after ending the previous session at 7.0935%. The yield has eased seven basis points (bps) in the last two days.
“US inflation data holds the key to whether the benchmark sees a break of 7.08% or moves back to 7.15% zone,” a trader with a private bank said.
Reuters poll of economists pegged US inflation for the 12 months ended June at 3.1%, down from the 4% reading in May.
However, some market participants expect a softer reading, which could negate the possibility of aggressive rate hikes from the Federal Reserve.
The Fed had paused in June but indicated two more raises in 2023.
The odds of a 25-bps hike on July 26 remain around 89%. US yields dipped recently on bets the Fed may stop its hiking cycle after the July rate hike.
The 10-year yield was down 13 bps from the highs hit last week to 3.96%, while the two year-yield, a closer indicator of interest rate expectations, declined 25 bps in the same period to 4.86%. The inversion in the key part of the yield curve contracted to around 90 bps from over 100 bps last week.
Indian bond yields track US peers lower, debt sale to provide cues
Meanwhile, India’s retail inflation data likely snapped a four-month decline in June as food prices surged, according to a Reuters poll that predicted inflation rose 4.58% on-year in June, against May’s 4.25%.
New Delhi will raise 330 billion rupees ($4.01 billion) through the sale of bonds on Friday, while it will raise 240 billion rupees via the sale of shorter-dated treasury bills later in the day.
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