MUMBAI: Indian government bond yields are expected to be largely unchanged on Tuesday, with the benchmark yield in touching distance of a key level, as investors’ focus remains on the US Federal Reserve’s monetary policy decision.
The 10-year yield is likely to move between 6.73% and 6.76%, a trader with a private bank said, compared with its previous close of 6.7430%.
“Benchmark bond should find some buying support at around 6.75% level, and direction on either side of this level would be visible only after the Federal Reserve’s monetary policy decision,” the trader said.
The Fed’s decision is due on Wednesday. While the central bank is widely expected to cut interest rates by 25 basis points, markets are fearing an uncertain outlook going into 2025.
The Fed is expected to say it is in no rush to cut rates further, even though inflation remains above its 2% annual target, and the labour market remains relatively strong, analysts have said.
The bond market will also focus on the Fed’s quarterly economic projections, including rate forecasts, also known as the dot plot, which had showed a policy rate of 3.4% by the end of 2025 in September.
Inflation in the world’s largest economy was in line with estimates, further clouding the rate cut trajectory for the upcoming year. Shorter-tenure US yields edged higher, while those on the longer end were flattish.
India bond yields trapped in narrow range before inflation data
The 10-year yield remained around the 4.40% mark in Asia hours.
The odds of a 25 bps cut this week stand at over 97%, but the odds of a reduction in January are just around 17%, according to the CME FedWatch Tool.
Meanwhile, minutes of the Reserve Bank of India’s December meeting are due on Friday and could provide more clarity on policymakers’ thinking about interest rate trajectory.
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