MUMBAI: Indian government bond yields rose in early trade on Tuesday tracking US peers, with focus now turning to demand at state debt auction later in the day for further cues.
The benchmark 7.26% 2033 bond yield was at 7.0936% as of 10:05 a.m. IST after ending the previous session at 7.0719%.
“Markets are tracking US yields as there are no strong cues in sight till Fed policy. The benchmark yield, however, will find strong support at 7.10% and then at 7.12%,” a dealer at a primary dealership said.
US yields rose on Monday, as investors priced in some risk that the Federal Reserve could raise interest rates two more times this year amid a still-resilient economy.
The 10-year US yield was at 3.8667%, while the 2-year yield was at 4.8454%.
The Fed is widely expected to hike interest rates by 25 basis points this week. The odds that are now over 97% but that of another increase after that have receded.
Trading in the US rate futures market suggested that this week’s hike will be the last for the year, with the Fed seen on hold until probably May 2024 and the next move will be a cut.
Indian bond yields seen largely unchanged as market awaits Fed policy
In India, however, investors have pushed back rate cut expectations by at least a quarter to the middle of 2024 due to recent rise in inflation, according to traders and analysts.
“The Reserve Bank of India (RBI) is likely to look through the pick-up in CPI inflation as it is led by transient supply-side factors,” said Gaura Sen Gupta, India economist at IDFC FIRST Bank in a note on Monday.
“RBI is expected to remain on pause till at least December 2023.” Later in the day, 11 states aim to raise 190 billion rupees ($2.33 billion) through bond sales.
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