MUMBAI: Indian government bond yields are expected to consolidate on Wednesday, after easing in the first two trading sessions of the week amid a marginal uptick in oil prices, while market participants await fresh triggers.
The benchmark 10-year yield is likely to trend in a 7.15%-7.19% range, following its previous close at 7.1643%, a trader with a primary dealership said. The benchmark yield has eased seven basis points in the last two days.
Bond yields are at levels that will need a very strong positive trigger for further declines, and even though geopolitical tensions have not escalated, they are not completely out of the picture, the trader added.
Bond yields eased as oil prices trended down after hitting multi-month highs, with traders not foreseeing any major impact on supply of the commodity due to the Middle East conflict.
Still, the benchmark Brent crude contract moved higher on Wednesday, after industry data showed a surprise drop in U.S. crude stocks last week.
India bond yields seen steady as traders eye debt supply
Oil prices affect domestic retail inflation as India is one of the largest importers of the commodity. Elevated prices could make the Reserve Bank of India’s inflation target more difficult to achieve.
Meanwhile, U.S. Treasury yields eased marginally, after data showed U.S. business activity cooled in April to a four-month low.
However, the 10-year yield stayed near the 4.60% mark, as the market does not expect rate cuts over the next few months, after a spate of strong data and comments from officials.
Investors are now pricing in the possibility of around 42 basis points (bps) of rate cuts by the Federal Reserve by the end of this year, compared to the more than 150 bps expected at the start of 2024, according to CME’s FedWatch Tool.
There is an embedded assumption that the Fed is done with tightening and further strength in the data would only prolong the pause, not prompt a hike, DBS said.
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