MUMBAI: Indian government bonds may conclude a holiday-truncated week by sliding further, although at a slower pace, as expectations of progress on an India-US trade deal raises doubts about the urgency of central bank rate cuts.
The yield on the benchmark 10-year note may move between 6.51% and 6.55%, a trader at a private bank said, after closing at 6.5357% on Thursday.
It has climbed three basis points so far this week. Bond yields move inversely to prices.
“Bond market has completely tilted towards the bears now, which was clearly evident with the selling pressure witnessed yesterday,” the trader said.
Still, the benchmark bond yield crossing 6.55% remains a very thin probability, he added.
Traders slashed positions, with heavy short covering witnessed as hopes built up that India and the US may strike a deal that lowers tariffs.
A reduction in steep tariffs on exports to the US could have a much smaller impact on the nation’s growth trajectory, potentially limiting future rate cuts, traders said.
A Reuters report on Thursday indicated that Indian refiners are likely to slash imports of Russian oil to comply with new US sanctions.
This could remove a major obstacle to a trade agreement.
India currently faces 50% tariffs on its exports to the US, with half of these duties imposed in retaliation for its Russian oil purchases.
The Reserve Bank of India earlier this month raised its forecast for growth in the Indian economy to 6.8% from 6.5% for the current financial year.
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