MUMBAI: Indian government bond yields may inch marginally higher early on Monday, tracking elevated U.S. yields, even as major focus would remain on local inflation print due later in the day and U.S. inflation data scheduled for Tuesday.
India’s benchmark 10-year yield is expected to hover in the 7.08%-7.13% range, following its previous close of 7.1067%. The yield rose 5 basis points (bps) last week, the most since the week ended Jan. 5.
“There could be some more uptick in yields, continuing from what we saw towards Friday’s close, but any major selloff is unlikely as traders will wait for inflation data to gauge the interest rate outlook,” the trader said.
India’s retail inflation likely eased to a three-month low of 5.09% in January on slowing food price rises and favourable base effects, according to economists polled by Reuters who also predicted a moderation in core inflation to 3.70%.
Inflation stood at 5.69% in December, while core inflation had eased to a four-year low of around 3.80%, according to economists. The government does not release core inflation figures.
India bond yields partly reverse budget-led fall this week as central bank disappoints
Last week, the Reserve Bank of India kept policy rates and stance unchanged without providing any major dovish guidance, while reiterating its commitment to meet the medium-term 4% inflation target.
“The last mile of disinflation is always the most challenging and that has to be kept in mind,” RBI Governor Shaktikanta Das said.
Sunidhi Securities has lowered its inflation forecast for the current financial year to 5.33% from 5.43% last month.
Meanwhile, U.S. yields stayed elevated before the key inflation print on Tuesday, which will provide the next clues on when the Federal Reserve is likely to begin cutting interest rates.
The 10-year yield was around the 4.20% handle, with the odds for a rate cut in March remaining around 17%, while that for such an action in May around 63%, down from over 97% last month.
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