MUMBAI: Indian government bond yields edged lower in early trading on Tuesday, tracking a dip in US Treasury yields, with investors now focusing on the Federal Reserve’s monetary policy decision due on Wednesday.
The benchmark 10-year yield was at 7.1863% as of 10:00 a.m. IST, following its previous close at 7.1971%. Indian markets will be closed on Wednesday for a holiday.
“With benchmark around 7.20%, Fed’s guidance would be the sole factor if we move towards 7.15% or 7.25% on Thursday,” trader with a private bank said. “Any major hawkish guidance, and expectations of cut for 2024 would drop down to one.”
US yields fell on Monday, pulling back a little from highs hit last week ahead of the Fed meeting that is expected to strike a hawkish tone, while keeping interest rates unchanged.
Following recent strong economic data, investors are pricing in the possibility of around 35 basis points (bps) of rate cuts in 2024, compared to over 150 bps at the start of 2024, according to the CME FedWatch Tool.
The Fed’s policy decision would also provide guidance for the Reserve Bank of India’s rate trajectory, even as swap markets have priced out cuts for the current financial year.
Meanwhile, the benchmark Brent crude contract stayed below $90 per barrel, after Israel-Hamas ceasefire talks in Cairo helped quell market fears of an expanded conflict in the Middle East.
Fresh peaks in Treasury yields to push Indian bond rates higher
Indian states will raise 147 billion rupees ($1.76 billion) through sale of bonds later in the day, with the quantum being sharply lower-than-schedule for the fourth consecutive week.
New Delhi will raise 280 billion rupees through sale of bonds on Friday.
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