MUMBAI: Indian government bond yields eased early on Tuesday, showing a divergence from US Treasury yields that have climbed sharply in the last few sessions as bets of near-term interest rate cuts by the Federal Reserve continue to fade.
India’s benchmark 10-year yield was at 7.0788% as of 10:05 a.m., following its previous close of 7.0937%.
“The market is ignoring the movement in Treasury yields for now and traders do not want to enter the central bank policy with bearish positions,” a trader with a primary dealership said.
The Reserve Bank of India’s monetary policy decision is due on Thursday, wherein the central bank is expected to hold the key interest rate steady, according to a Reuters poll.
Traders, however, are anticipating some dovish commentary and guidance from central bank members as inflation is expected to ease going ahead.
The policy comes after a boost from the federal budget announcement last week as India aims to reduce the fiscal deficit and lower its gross borrowing by a wide margin compared with the current year.
The plan to tighten the fiscal policy has not only boosted bonds but could also push the country’s central bank to ease its stance on liquidity in the coming months, said Neeraj Gambhir, the treasury head of Axis Bank.
India bond yields likely to see uptick as US peers jump
Meanwhile, US yields rose on Monday as a recent spate of strong economic data, including the key non-farm payrolls, pushed back the timing for policy easing.
Additionally, comments from Fed Chair Jerome Powell stating that the US central bank can be prudent in deciding when to cut its benchmark interest rate also led to the trimming of bets for a May rate cut.
The 10-year yield rose above 4.15% on Monday and the odds for a Fed rate cut in March have dropped to around 15% from 66% last month, while the odds for a May cut have also declined to around 62% from 88% last week.
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