MUMBAI: Indian government bonds are likely to recover marginally on Monday, and yields may dip in opening trades tracking a similar move in US yields, after inflation did not surprise negatively, while bond demand at quarter-end will also support.
The benchmark 10-year yield is likely to move between 6.73% and 6.77% on Monday, compared with its previous close of 6.7609%, trader with a primary dealership said.
“There is a window of opportunity to get in, and the way state-run banks have bought last week, we would definitely see the benchmark bond yield easing below 6.75% handle today, and stay there for the week,” the trader said.
US yields fell on Friday after data showed inflation in the world’s largest economy continued to ease, boosting the chances of yet another larger interest rate cut at the Federal Reserve’s November policy meeting.
The personal consumption expenditures (PCE) price index, the Fed’s favoured inflation measure, rose 0.1% in August in line with estimates, against 0.2% gain in July.
In the 12 months through August, the reading rose 2.2% after rising 2.5% in July. Excluding the volatile food and energy components, the so-called core PCE price index increased 0.1% after an unrevised 0.2% rise in July. In the 12 months through August, core inflation advanced 2.7% after climbing 2.6% in July.
The interest rate futures market has assigned a probability of another 53% for a 50-basis-point rate cut, sharply higher from 10% a month ago.
Indian bonds struggle for direction, little help from FY25 budget
Back home, demand is expected to remain strong on the last day of the fiscal second quarter, and after state-run banks turned large buyers in the previous week.
India will sell bonds worth 6.61 trillion rupees ($78.97 billion) from October through March, which is in line with budget estimates.
This had led to steepening in the yield curve on Friday, even as the Reserve Bank of India continued bond sales.
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