MUMBAI: Indian government bond yields are expected to inch lower in early deals on Wednesday, tracking a drop in U.S. Treasury yields, even as a larger move is unlikely ahead of the Federal Reserve’s monetary policy decision due later in the day.
The yield on the benchmark 10-year bond is likely to move between 6.33% and 6.37%, a trader at a private bank said, after closing at 6.3589% on Tuesday.
“There could be some rally in bonds, and short covering will also support,” the trader said, “but the key level of 6.33% should remain untouched.”
U.S. Treasury yields fell after registering strong demand at an auction, and as a weaker-than-expected report on job openings for June suggested there are pockets of weakness in the labour market.
The 10-year yield eased to its lowest level in nearly four weeks, and hovered around there in Asian hours on Wednesday.
The Fed will deliver its monetary policy decision after Indian market hours. While rate action is not expected, the focus would be on guidance from the Fed Chair Jerome Powell.
The odds of a 25-basis-point rate cut from the Fed in September have risen to 66%, up from 60% a week ago, according to the CME FedWatch tool.
Bonds have traded choppy since the last three sessions, after bets of an immediate interest rate cut from the Reserve Bank of India (RBI) dried up following hawkish commentary from Governor Sanjay Malhotra.
On Friday, Malhotra said the bar for further easing is now higher than it would have been if the stance was still “accommodative”.
The central bank changed its stance to neutral while cutting the benchmark interest rate by 50 basis points at its last meeting in June.
A majority of the economists polled by Reuters expect the RBI to hold rates at its next monetary policy announcement on August 6.
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