MUMBAI: Indian government bond yields are expected to nudge lower at open on Thursday on back of the decline in US Treasury yields, despite the Federal Reserve’s preferred inflation gauge indicating a potentially cautious road to the central bank cutting borrowing costs.
The benchmark 10-year bond yield is likely to move between 6.79% and 6.82% compared with its previous closing level of 6.8123%.
“Probably (yields will) nudge a bit lower at open and then should be fairly quiet. Difficult to see much desire to take it much below 6.80%,” a fixed income trader at a bank said.
“That will happen, if at all, post the (India) GDP data.”
India September-quarter growth data is due on Friday.
The 10-year US Treasury yield dropped six basis points on Wednesday to the lowest in more than three weeks, despite inflation remaining elevated, taking its week-to-date fall to 16 bps. The US core personal consumption expenditures (PCE) price index rose 0.3%, matching expectations.
In the 12 months through October, core inflation increased 2.8%, up from 2.7% in September. The Fed’s medium-term target for inflation is 2%.
The “sticky reading” will add to doubts that the Fed needs to cut interest rates in December after all, ING Bank said in a note.
“The 0.3% month-on-month reading may still be a little too high for the Fed’s liking”, ING said.
India bond yields to trend higher as US peers spike
The interest rate futures market is currently assigning a 60% probability that the Fed will cut rates at its December meeting.
Investors expect more rate cuts in 2025, although they reckon it will slower and shallower in the wake of Donald Trump’s election victory.
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