MUMBAI: Indian government bond yields declined on Monday, tracking a fall in U.S. yields as the market fully priced in the shift in the Federal Reserve’s monetary policy outlook to a gradual easing path.
The benchmark 10-year yield was at 7.0508% as of 10:15 a.m. IST, following its previous close of 7.0764%.
“If a fall in U.S. yield sustains, then the benchmark local bond yield may move towards the 7%-mark during the week,” a trader with a state-run bank said.
U.S. Treasury yields declined on Friday from multi-month highs and extended a decline in Asian hours on Monday as investors consolidated positions after a week-long run-up.
The 10-year U.S. bond yield was at 4.2323% in Asian hours, while two-year yield was at 4.6745%.
Comments from Fed officials last week suggested the U.S. central bank will take its time cutting interest rates to make sure that inflation falls to its 2% target on a sustainable basis.
India bond yields flattish as market digests RBI minutes
As a result, the rate futures market has also reduced expectations of the number of rate cuts to three this year from five a few weeks ago, with the start of the easing cycle possibly commencing in June or later, according to LSEG’s rate probability app.
In India, the current monetary policy is appropriate with growth holding firm and inflation trending down to the target, the central bank Governor Shaktikanta Das said in the minutes last week.
The Reserve Bank of India left the key repo rate unchanged at 6.50% earlier this month, and reiterated its commitment to meet the 4% inflation target on a sustainable basis.
Market participants will await a state debt sale on Tuesday to gauge investor demand for debt securities. Twelve states aim to raise 328.5 billion rupees ($3.96 billion) through bonds maturing in nine to 22 years.
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