MUMBAI: Indian government bond yields moved higher on Tuesday as investors booked profits after the recent decline in prices and as U.S. Treasury yields rebounded from more-than-one-year lows.
The benchmark 10-year yield was at 6.8714% as of 10:00 a.m. IST, compared with its previous close of 6.8611%, its lowest since March 31, 2022.
“Bonds both in India and the United States were in an overbought zone and some correction was due. We even do not rule out benchmark yield going back to the 6.90% mark if U.S. yields stay here or rise further,” a trader with a state-run bank said.
U.S. yields rebounded on Monday and rose further in Asian trading hours on Tuesday after data showed U.S. services sector activity recovered from a four-year low in July amid a bounce back in new orders and the first increase in employment in six months.
This, along with Chicago Federal Reserve President Austan Goolsbee saying that the bleak jobs data on Friday did not indicate a recession, reduced fears about U.S. growth.
India 10-year bond yield holds 6.90% level before debt sale
The odds of a 50 basis points Fed rate cut in September have eased to 74% from nearly 100% on Monday. Futures are now pricing in 110 bps of rate cuts in 2024, compared with around 125 bps on Monday, as per the CME FedWatch tool.
Back home, the Reserve Bank of India is expected to keep its key policy rate and stance unchanged at its meeting on Thursday, due to persistently higher-than-targeted inflation, with a slim majority of economists in a Reuters poll expecting the first cut next quarter.
While most economists expect 50 bps worth of rate cuts this financial year, Nomura is expecting 75 bps.
Meanwhile, eleven states will raise 237 billion rupees ($2.83 billion) through bond sales later in the day.
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