MUMBAI: Indian government bond yields are expected trend lower in early trading on Tuesday as US yields eased further, while traders await fresh supply via sale of debt from states.
The benchmark 7.26% 2033 bond yield is likely to be in the 7.15%-7.20% range after ending the previous session at 7.1799%, a trader with a private bank said.
“The factors have turned bullish for US as well as India bonds, and we may see buying momentum continuing,” the trader said. “Still, we may not see the 7.15% level to be broken on the bottom, unless we have some fresh new triggers.”
US yields continued a downward trend, with the 10-year yield pulling back from near 16-year highs hit last week, as investors awaited key US data led by the non-farm payrolls report for August on Friday, which should help determine the path of interest rates this year and next.
The 10-year yield eased below 4.20% as traders do not expect the Federal Reserve to hike rates further, even as Chair Jerome Powell said on Friday that the Fed may need to raise rates further to cool still-too-high inflation.
Back home, traders will keep an eye on the domestic inflation trajectory as well as evolving liquidity conditions, which will act as major cues.
India’s retail inflation spiked to a 15-month high of 7.44% in July from 4.87% in June, and traders expect the next reading to also remain elevated.
The Reserve Bank of India (RBI) aims to keep inflation at 4% over the medium term, with a tolerance band of 2% on either side.
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