Indian bond yields may inch higher as Treasury yields jump

MUMBAI: Indian government bond yields are expected to rise on Monday as yields of US peers jumped sharply after strong economic data further pushed back expectations around the timing of the first rate cut in the world’s largest economy.

The yield on the benchmark 10-year is likely to trade in the 7.10%-7.15% range after closing at 7.1232% in the previous session, a trader with a private bank said.

“Local bond yields could also test new levels as the 10-year US yield has now crossed 4.40% mark and could test 4.50% levels, which is the next key technical level,” the trader said.

US yields jumped on Friday after data showed non-farm payrolls grew by 303,000 jobs in March compared with expectations for an increase of 200,000, while the unemployment rate slipped to 3.8% compared with forecasts of 3.9%.

The 10-year yield was hovering around 4.42%, its highest level in over four months, while the two-year yield, a closer indicator of interest rate expectations, was also at an over four-month high of around 4.78%.

The strong data has further raised uncertainty over the timing of rate cuts from the Federal Reserve, with the odds of a June action now dropping below 50%, compared to over 60% last week, according to the CME FedWatch tool.

Back home, the Reserve Bank of India (RBI) kept interest rates unchanged for a seventh straight policy meeting on Friday as growth in the economy is expected to remain robust while inflation stays above the 4% target.

India bonds not reacting to strong domestic growth, yields little changed

Goldman Sachs expects the RBI to remain nimble in liquidity management going forward through two-way liquidity operations.

“We expect a shallow easing cycle with two repo rate cuts of 25bp (basis points) each in consecutive quarters, most likely starting in Q3 CY24.”

Meanwhile, traders are worried as the benchmark Brent crude contract hovers near $90 per barrel, with many bond investors keeping a close eye on oil prices as higher commodity prices could impact retail inflation.