MUMBAI: Indian government bond yields turned higher after an early dip on Monday, as traders booked profit after a decline in the previous session, with the focus shifting to the Federal Reserve’s monetary policy decision.
The benchmark 10-year bond yield was at 7.1990% as of 10:00 a.m. IST following its previous close at 7.1870%.
Earlier in the day, it had eased to 7.1751%. Indian bond yields declined last week, after rising for the first three weeks of the new fiscal year, as strong demand at the weekly debt auction aided sentiment.
“Yields had come off after the auction went through smoothly, which has pushed yields down. But since we have the Fed policy this week, traders do not want to go heavy as a negative surprise is possible,” a trader with a private bank said.
The Fed is expected to hold interest rates steady at the end of its two-day policy meeting on Wednesday, but traders will scrutinise the commentary and guidance on inflation, which will shape the trajectory of interest rates over the coming months.
Investors are now pricing in the possibility of around 35 basis points (bps) of rate cuts by the Fed this year, compared to over 150 bps at the start of 2024, with the first cut likely in September or November, according to CME’s FedWatch Tool.
US yields eased on Friday after data showed a key inflation gauge was largely in line with expectations.
Fresh peaks in Treasury yields to push Indian bond rates higher
The personal consumption expenditures (PCE) price index increased 0.3% last month and 2.7% annually, compared with economists’ expectations of a 0.3% increase on-month and 2.6% year-on-year.
Meanwhile, the benchmark Brent crude contract eased in Asian hours as Israel-Hamas peace talks in Cairo calmed fears of a wider conflict in the Middle East, which could have raised uncertainties over supply.
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