MUMBAI: Indian government bond yields are expected to ease on Thursday, tracking a fall in US Treasury yields, after data showed that underlying US inflation softened last month, reigniting bets that the Federal Reserve may deliver more rate cuts in 2025.
The 10-year bond yield is likely to move between 6.77% and 6.80%, a trader with a private bank said, compared with its previous close of 6.8136%.
“We could see a small gap down opening for yields today as the benchmark bond yield is still at an attractive level to enter afresh,” the trader said.
Data on Wednesday showed that the US headline Consumer Price Index (CPI) rose 0.4% last month after climbing 0.3% in November.
In the 12 months through December, the CPI advanced 2.9% after increasing 2.7% in November.
Economists polled by Reuters had forecast the CPI gaining 0.3% and rising 2.9% year-on-year. However, excluding volatile food and energy components, the CPI increased 0.2% in December after a 0.3% rise in the previous month.
In the 12 months through December, core CPI increased 3.2% after climbing 3.3% in November.
US yields eased after the data, with the 10-year yield dropping 14 basis points on Wednesday, its biggest single-day move in nearly two months. It was around 4.66% during Asia trade.
India bond yields rise in lead up to domestic inflation data
The data did not change expectations of a pause in easing by the Fed this month, but investors are now anticipating one-and-a-half rate cuts this year, up from one before the data.
Meanwhile, the Reserve Bank of India late on Wednesday said it will conduct variable rate repo (VRR) auctions on all working days until further notice, starting from Thursday, amid tight liquidity in the banking system.
“The Indian central bank’s liquidity moves will be favourable for the short and ultra short-end of the bond yield curve,” a trader said.
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