MUMBAI: Indian government bond yields inched higher in early trades as US Treasury yields continued to witness upward pressure, with more doubts rising over the possibility of rate cuts by the Federal Reserve in June.

The benchmark 10-year yield was at 7.0527% as of 10:00 a.m. IST, following its previous close of 7.0401%.

“There is high probability the 10-year US yield breaks its recent high, and could also march towards 4.50% if bets of June rate cut go off the table,” said a trader with a private bank, adding that this is leading to more caution for local bonds.

US yields rose for a fourth consecutive day on Thursday following higher-than-expected producer prices, leading to further uncertainty about whether the Fed would start rate cuts later than the widely expected June.

The producer price index data followed Tuesday’s surprisingly solid increase in the consumer price index, which rose 0.4% on-month and 3.2% for the 12 months through February.

The data comes just a week before the Fed’s monetary policy decision, due on Wednesday, and has raised concerns that some members may tone down their rate cut expectations for 2024.

This pushed the 10-year yield to around 4.30%.

India bond yields stuck in range despite uptick in US peers

The odds for a rate cut in June have now eased to 61% from 74% last week and 82% last month, according to the CME FedWatch tool.

Meanwhile, the break of the $85-per-barrel mark in the benchmark Brent crude contract could also weigh on sentiment, as sustained elevated oil prices are likely to impact domestic inflation.

The Reserve Bank of India has maintained that it may consider easing rates only when inflation meets its medium-term target of 4% on a sustainable basis.


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