MUMBAI: Indian government bond yields were marginally lower on Tuesday after data showed the country's retail inflation fell to a near five-year low in July, although traders shied away from any major move ahead of US inflation data due later this week.
The benchmark 10-year yield was at 6.8708% as of 10:00 a.m. IST, compared to its previous close of 6.8801%.
"Lower inflation was already factored in and is just playing as an additional factor to support sentiment but will not be able to drive the yields lower. All focus is now on the US data," a trader with a state-run bank said.
India's annual retail inflation was 3.54% in July, the lowest since August 2019 and lower than economists' estimate of 3.65%, as food inflation eased from previous highs due to a base effect.
Last week, the Reserve Bank of India kept the key interest rate unchanged, retaining its focus on bringing inflation down.
Citi still expects a change in monetary policy stance in February and a rate cut in April, but will be watching the inflation and global cues closely.
US retail inflation data is due on Wednesday, which would be a crucial guiding factor to gauge the timing and magnitude of rate cuts from the Federal Reserve.
India bonds not reacting to strong domestic growth, yields little changed
The market currently is split between a 25-basis-point and 50-bps rate cut in September and is anticipating 100 bps of cuts in 2024, down from 125 bps last week, per the CME FedWatch tool.
The 10-year US bond yield eased to 3.90%, with investors expecting a directional change after the data.
Meanwhile, seven Indian states will raise 159.50 billion rupees ($1.90 billion) via a sale of bonds later in the day.
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