MUMBAI: Indian government bond yields are expected to open marginally lower on Wednesday, tracking a fall in US Treasury yields, while major focus remains on jobs data in the world’s largest economy, which will be the key driver for interest rate cuts.
The benchmark 10-year yield is likely to move between 6.85% and 6.88%, compared with its previous close of 6.8707%, a trader with a private bank said.
“We could see some buying in bonds at open, but directionally, it would not be enough to take the yields to any fresh lows, and unless we have the US jobs data out of our way, we are in for a few more sessions of sideway trades.”
US Treasury yields have dipped this week, with the 10-year yield reversing the rise to move around 3.80% levels in Asian hours after economic data raised bets of a deeper rate cut by the Federal Reserve later this month.
The Institute for Supply Management said its manufacturing PMI rose to 47.2 in August from an eight-month low of 46.8 in July, and remained below the 50 reading to indicate contraction for the fifth straight month.
Market participants are awaiting the US non-farm payrolls data due on Friday, which most believe would be the final trigger to move the needle in faovur of a 25 or 50 basis point move.
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Markets are fully pricing in a rate cut of at least 25 bps at the Fed’s meeting this month, with expectations for a 50 bps cut rising to 41% from 30% earlier this week.
Meanwhile, Nomura expects the Reserve Bank of India to begin cutting interest rates next month, as inflation edges lower and economic growth weakens.
STCI Primary Dealer expects 10-year bond yield to trade in 6.80%-6.90% band in near term.
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