MUMBAI: Indian government bond yields were a tad lower on Wednesday amid persistent demand from domestic banks, although a major move was likely only after the Federal Reserve’s monetary policy decision and guidance.
The benchmark 10-year yield was at 6.9177% as of 10:00 a.m. IST, compared with its previous close of 6.9326%.
Even though rate action is not expected, commentary from Fed members could set the tone for three rate cuts in 2024, a trader with a private bank said.
The 10-year US yield drifted lower overnight ahead of the Fed’s decision on Wednesday, due after Indian market hours, where the central bank is expected to signal the start of rate cuts from September and any dovish tilt in Chair Jerome Powell’s remarks could cement bets of 75 basis points reduction in 2024.
Currently, investors have priced a 25 basis-point cut in September, and an aggregate of 68 bps of cuts in 2024, according to the CME FedWatch tool.
Meanwhile, local banks continued to add government bonds as the Reserve Bank of India’s draft guidelines to bolster the liquidity resilience of lenders could require maintaining higher holding of government securities if implemented in its current form.
India bonds not reacting to strong domestic growth, yields little changed
Traders will also eye supply as the Indian central bank will sell bonds worth 220 billion rupees ($2.63 billion) on Friday. The RBI will also auction treasury bills worth 200 billion rupees later on Wednesday.
Friday’s auction will contain 100 billion rupees of a new 30-year paper, and this comes after the central bank said it will not place any new 14-year and 30-year bond issuances under a segment with no foreign investment cap.
Foreign investors see this decision to return to curbs on purchases as a flip-flop in policy that may force them to redraw investment strategies.
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