MUMBAI: Indian government bond yields moved sideways in early trades on Thursday, as traders awaited key inflation data from the United States which would provide clues on the timing and pace of rate cuts by the Federal Reserve.
The 10-year benchmark bond yield was at 7.1852% as of 10:00 a.m. IST, following its previous close at 7.1808%. “We can say this is the calm before the storm, as inflation print is most likely to lead to a breach of 7.18% levels on the benchmark on either side,” a trader with a state-run bank said.
“Higher chances are of a move towards 7.15% levels.”
The US consumer inflation reading is seen at 0.2% on-month in December, while inflation for 12 months to December is seen rising at a pace of 3.8%, according to a Reuters poll.
US bond yields have risen since the start of the New Year, with the 10-year yield remaining above the critical 4% mark, as bets of aggressive rate cuts by the Fed have eased.
India bond yields little changed before inflation prints
The odds for a rate cut by the Fed in March stand at 68%, against around 90% towards the end of December, according to CME FedWatch tool. Meanwhile, India’s retail inflation print is due after bond market hours on Friday.
The key price gauge is expected to rise but stay within the Reserve Bank of India’s target range for a fourth consecutive month, according to a Reuters poll.
Inflation is seen at 5.87% on year due to elevated food prices against 5.55% in November, the poll showed. Bond traders await New Delhi’s 330-billion-rupees ($3.97 billion) bond sale on Friday, which includes the benchmark.
The auction will raise the benchmark’s outstanding to 1.69 trillion rupees, above the ad hoc limit where the government stops issuing bonds.
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