MUMBAI: Indian government bond yields are expected to open lower on Friday as sentiment was boosted after a sharp reversal in expectations on the quantum of US rate cuts next week, while traders await the domestic debt auction.
New Delhi will sell bonds worth 220 billion rupees ($2.62 billion) later in the day.
The benchmark 10-year yield is likely to move between 6.78% and 6.82% till the debt auction, compared with its previous close of 6.8054%, the lowest since March 30, 2022, a trader with a primary dealership said.
“The sudden reversal in bets of a rate cut from the Federal Reserve would see another round of rally that had started late yesterday, but at current levels, profit booking would also be at its peak,” the trader said.
US yields fell on Thursday as rate futures rallied in reaction to media reports suggesting the Fed decision on a rate cut of 25 or 50 basis points (bps) at its Sept. 18 meeting would be a close one.
The Wall Street Journal and the Financial Times reported that the size of a rate reduction would be a tough call for the Fed, surprising markets as they had assumed a 25 bps action.
The probability of a 50 bps move tripled and jumped to 43%, up from just 14% a day ago after the news, with aggregate cuts of 115 bps now expected over the remaining three meetings in 2024.
On Thursday, India’s August retail inflation remained below the central bank’s target of 4% for the second month, but vegetable prices continued to soar.
India bonds not reacting to strong domestic growth, yields little changed
Annual retail inflation was at 3.65% in August, higher than the revised 3.60% in July and economists’ forecast of 3.50%.
Barclays said taking into account August data and early price indicators for September, it expects inflation for September at 5.1% on-year, as base effects reverse.
Sentiment was also upbeat after the Reserve Bank of India cancelled two treasury bill auctions of an aggregate amount of 400 billion rupees, due in September.
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