MUMBAI: Indian government bond yields are expected to trend marginally lower in opening deals on Thursday, after US inflation data came in line with expectations, suggesting the Federal Reserve is on track to cut rates as expected next month.
However, the fall is likely to be capped ahead of fresh debt supply through a weekly auction.
The benchmark 10-year bond yield is likely to move between 6.78% and 6.82%, compared with the previous close of 6.8031%, according to a trader with a state-run bank.
Indian markets are shut on Friday for a local holiday.
“We could see some confidence return to the local bonds market, as the odds of a Fed rate cut in December have increased.
Still, the benchmark yield may be glued to the 6.79%-6.80% mark, as fresh supply includes a 15-year bond,“ the trader said.
India aims to raise 370 billion rupees ($4.38 billion) through sale of bonds, which includes 130 billion rupees of a new 15-year paper.
US consumer prices increased 0.2% for a fourth straight month, while for the 12 months through October, the consumer price index advanced 2.6% after climbing 2.4% in September. Economists polled by Reuters had forecast the CPI gaining 0.2% and increasing 2.6% year-on-year.
India bond yields biased lower on pullback in US rates
The odds of a Fed rate cut next month have risen after the inflation reading came in line with estimates, with the shorter duration US yields that are more reactive to rate cuts seen coming down more.
The 10-year US Treasury yield was around 4.47%, with interest rate futures providing 83% probability of a Fed rate cut next month, up from 59% a day ago, and 70% a week ago, according to the CME FedWatch tool.
Locally, consumer price inflation accelerated to 6.21% in October, breaching the Reserve Bank of India’s target range for the first time in 14 months, dashing hopes for an interest rate cut next month.
The RBI is targeting to keep inflation in a range of 2%-6%, with a medium-term goal of 4%.
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