MUMBAI: Indian government bond yields are expected to rise at open on Friday, as US Treasury yields spiked after latest economic pushed back bets of rate cuts in the world’s largest economy.
The benchmark 10-year Indian yield is likely to trade in a 7.20%-7.25% range, following its previous close at 7.2061%, a trader with a primary dealership said.
“We should witness selling pressure right from the start as Treasury yields are persistently inching higher. The move would have a clear impact on demand and cutoffs for the debt auction,” the trader said.
New Delhi will sell bonds worth 320 billion rupees ($3.84 billion) later in the day, which includes 200 billion rupees of the 7.10% 2034 paper, which will replace the existing benchmark bond soon.
US yields jumped, with the 10-year yield hitting its highest level in nearly six months, and threatened to break the critical mark of 4.75%.
The two-year yield, a closer indicator of interest rate expectations, rose over the 5% mark again.
Even as US growth was lower-than-expected, an inflation gauge rose by 3.7%, above expectations for a 3.4% increase.
India bonds not reacting to strong domestic growth, yields little changed
The data comes before Friday’s highly anticipated personal consumption expenditures report for March.
The data, along with hotter-than-expected retail inflation reading for March, could nudge the Federal Reserve to adopt a cautious tone in its monetary policy decision on May 1, traders said.
Odds of a US rate cuts declined further, with probability of a rate cut in September at 60%, down from 70% before the data.
Investors are now pricing in the possibility of around 35 basis points (bps) of cuts by the Fed in 2024, according to CME’s FedWatch Tool.
The benchmark Brent crude contract continues to hover around the $90 per barrel mark.
Elevated crude prices could impact India’s retail inflation as the nation is one of the largest importers of the commodity.
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