MUMBAI: Indian government bond yields are likely to hold steady in opening trade on Wednesday, as market participants brace for key US inflation data, which could provide clarity on the size of the Federal Reserve’s interest rate cut next week.
The benchmark 10-year yield is likely to move between 6.84% and 6.88%, compared with its previous close of 6.8510%, a trader with a primary dealership said.
The Fed’s rate cut expectation has been driving a rally in securities across the emerging and developed markets with the prospect that other central banks will either follow suit in some time or at least will have the flexibility, said Anitha Rangan, an economist at Equirus Group.
“Indian yields (10-year), however, have remained in a tight range as the Reserve Bank of India has in more than many words emphasized that domestic inflation is wrought with risks from food inflation and current growth situation does not necessitate accommodation.”
The US consumer price index report is due after Indian market hours on Wednesday, and the reading is expected at 2.6% on-year, and at 0.2% on a monthly basis, according to a Reuters poll.
The US Treasury yields were almost unchanged on Tuesday ahead of a US presidential candidates’ debate and before the inflation data, which could fuel speculation on the size of the Federal Reserve’s first interest rate cut.
Rates traders are considering a 73% probability of a 25-basis-point cut at the Fed’s Sept. 17-18 meeting, up from 62% a week earlier and from 70% on Monday.
Indian bond yields may track US peers lower
India’s retail inflation data, due after market hours on Thursday, is also on traders’ radar.
Retail inflation probably held below the RBI’s 4% medium-term target for a second month in August thanks to a moderation in food price rises due to last year’s high base, a Reuters poll showed.
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