MUMBAI: Indian government bond yields are expected to edge lower in opening trade on Thursday as U.S. yields declined further after commentary from Federal Reserve Chair Jerome Powell, while investors await the key U.S. jobs data.
The benchmark 10-year yield is expected to drift in the 7.03%-7.08% range, following its previous close of 7.0548%, a trader with a private bank said.
“Again, there could be some buying at the open, but it would be difficult for the benchmark yield to sustain below 7.04%-7.05% for the entire day as the latest trend has pointed out,” a trader with a private bank said.
U.S. yields declined, with the 10-year yield, dropping to a one-month low of 4.07% on Wednesday, after Powell said that continued progress on inflation “is not assured,” but the central bank still expects to reduce rates later this year.
“If the economy evolves broadly as expected, it will likely be appropriate to begin dialling back policy restraint at some point this year,” Powell said in a testimony.
Indian bond yields may nudge lower tracking US peers
The odds for a rate cut in May have now eased to 17% from 25% a day ago, while that for a rate action in June stand at 70%, up from 63% in the previous week, according to the CME FedWatch tool.
Capital Economics said a stronger rise in core consumer prices in January will prove to be noise rather than a genuine turning point and wider evidence suggests that wage growth will remain on a downward trend.
“The upshot is that we still see the first rate cut coming in June and scope for rates to then be lowered a bit more quickly than markets are pricing in.”
Traders now await February non-farm payroll data, due on Friday.
Back home, bonds have shrugged off the inclusion of Indian government notes in Bloomberg’s Emerging Market Local Currency Index as the market expects inflows of less than $5 billion.
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