MUMBAI: Indian government bond yields are expected to trend lower in opening deals on Friday, tracking a similar move in US yields after the Federal Reserve eased interest rates as expected and its commentary was largely seen as neutral.
The benchmark 10-year bond yield is likely to move between 6.75% and 6.79%, compared with Thursday’s close of 6.7931%, a trader with a private bank said.
The most liquid 7.10% 2034 bond ended at 6.82382% yield in the previous session.
“The Fed guidance was neither very dovish nor very hawkish, but US yields had sold off quite a bit and, hence, some recovery was on the cards as there was no major negative narrative from the Fed,” the trader said.
The Fed cut interest rate by 25 basis points on Thursday, as widely expected, amid a cooling labour market, while noting that economic growth remained solid.
In a press briefing after the rate decision, Fed Chair Jerome Powell said the US central bank is going to “move carefully” as the easing cycle goes on to increase the chances that it gets it right.
He also noted that the Fed has no plan to raise interest rates.
Interest rate futures now price in a 75% probability that the Fed will cut rates by another 25 basis points in December, up from 70% before the decision.
Futures are pricing in an additional 25 bps of cuts for the next quarter. Capital Economics expects the Fed to call time on this loosening cycle a little earlier than before.
Indian bond yields seen little changed ahead of Fed policy decision
“We anticipate additional 25 bp reductions at each meeting until next May, with the rate bottoming out at between 3.50% and 3.75%, 50 bps higher than our pre-election forecast,” the brokerage said in a note.
US yields declined, with the 10-year yield moving below 4.35% after the Fed meeting and Powell said election had no near-term policy impact.
Analysts expect policies of Donald Trump, who was elected for a second term, are likely to stoke inflation.
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