MUMBAI: Indian government bond yields climbed on Friday as elevated US inflationary pressures reaffirmed doubts on the ability of the Federal Reserve to deliver interest rate cuts in the near future, sending Treasury yields higher.
The yield on the benchmark Indian 10-year was at 7.1749%, as of 10 a.m. IST, after closing at 7.1112% on Wednesday.
The yield hit 7.1809%, highest since Jan. 29 earlier on Friday, while the bond markets were shut on Thursday.
“June rate-cut bets are out of the window for now, and even September seems to be a distant possibility, and the recent rise in Treasury yields seems to be of a more permanent nature, with high chances of touching fresh highs, instead of a correction,” a trader with a primary dealership said.
US Treasury yields climbed to levels seen five months ago, after hotter-than-anticipated inflation data on Wednesday raised doubts over the Fed’s ability to lower interest rates this year.
The two-year yield, the closest indicator of rate expectations, topped 5.00%, while the 10-year yield nearly touched 4.60%.
The inflation reading, along with strong US non-farm payrolls data last week, has slashed the odds of a rate cut in June to marginally above 20% currently from 66% last week, according to the CME FedWatch tool.
Cooling Treasury yields nudge Indian bond yields lower
The “soft-landing” base case is now challenged as recent data point to relatively hot economic conditions, DBS said, adding that against this backdrop it is plausible to argue that the Fed may not need to cut this year.
In India, traders will eye local inflation data as well as fresh debt supply later in the day for more cues.
New Delhi will raise 300 billion rupees ($3.60 billion) via sale of bonds, including a new 15-year paper.
Meanwhile, India’s consumer price inflation likely eased to a five-month low of 4.91% in March from 5.09% in February, but stayed above the 4% target, according to a Reuters poll.
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