MUMBAI: Indian government bond yields may nudge higher in opening trades on Monday, tracking an uptick in US rates while investors await data points that will provide cues on whether the Reserve Bank of India (RBI) will cut rates next month.
The 10-year bond yield is expected to move between 6.78% and 6.80%, having ended at 6.7891% on Friday.
The 10-year US yield inched up in Asia trade to 4.6340%, hovering near its recent highs.
Worries over a wider fiscal deficit and higher inflation on account of US President-elect Donald Trump’s policies of tax cuts and tariffs have prompted investors to demand higher yields on US Treasuries.
The 10-year US yield climbed 85 basis points last quarter.
Two things will drive returns on Indian bonds over the next few weeks - what Trump does after he takes office on Jan. 20 and what RBI does in February, a fixed income trader at a bank said.
RBI, when it makes its decision on interest rates on Feb. 7, will take into account India’s slowing growth, stubborn inflation and a rupee that has been repeatedly slipping to all-time lows.
It will be RBI’s new head Sanjay Malhotra’s first policy. Following his appointment in December - a surprise for markets - prospects of a rate cut had climbed.
India 10-year bond yield up for third straight session as debt supply weighs
However, the rupee’s recent weakness has prompted traders to temper expectations on the RBI slashing borrowing costs.
Before the meeting, the RBI will have a read on how inflation is progressing with the December print out on Jan. 13.
Meanwhile, the December US jobs report due this Friday and the inflation data on Jan. 15 will be key for US rates.
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