MUMBAI: Indian government bond yields are likely to stay largely unchanged in the early session on Thursday as traders await fresh triggers like debt supply on Friday and Federal Reserve policy rate decision next week.
The benchmark 7.26% 2033 bond yield is expected to be in the 7.06-7.10% range after ending the previous session at 7.0769%, a trader with a primary dealership said.
“We saw some consolidation yesterday, as traders are not comfortable to take yields below 7.05%-7.06% levels without any actual major positive trigger, and today also there would be sideways movement,” the trader said.
Bond yields have been dipping in the last few sessions, tracking their US peers and the moves in overnight indexed swap (OIS) rates.
US yields and Indian swaps fell on increasing speculation that the Fed rate hike next week would be its last in the current tightening cycle.
The 10-year US yield was around 3.75%, while the five-year OIS was at 6.21%.
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The Fed policy decision is due on July 26, and the odds of a 25-bps hike stay around 96%, but that of another increase after that has sharply receded.
Indian government bonds are likely to rally in the coming weeks, pulling the benchmark 10-year yield below 7% if the Fed signals an end to its current tightening cycle, said Vikas Goel, managing director and chief executive officer of PNB Gilts.
“The Fed rate hike next week should be final and maybe towards the end of 2023, it could start cutting rates. We could see a retest of 6.95% on the 10-year benchmark.
If the Fed dials down the metric of how hawkish it is, we can see a 10-basis-point move,“ Goel said.
Meanwhile, traders await fresh supply as New Delhi will raise 310 billion rupees ($3.78 billion) through a sale of bonds on Friday, which includes 140 billion rupees of a new 14-year bond.
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