India bonds set to open lower on hawkish Fed commentary

MUMBAI: Indian government bonds are expected to edge lower in early deals on Thursday, mirroring US Treasuries, after comments from Federal Reserve Chair Jerome Powell dampened hopes of a December rate cut.

The yield on the benchmark 10-year note may swing between 6.52% and 6.56%, a trader at a private bank said, after ending Wednesday at 6.5354%.

On Wednesday, the Fed lowered interest rates by 25 basis points for the second time this year, bringing the benchmark overnight rate down to 3.75%-4.00%.

At a press briefing after the decision, Powell said Fed officials struggled to reach a consensus on the future trajectory of monetary policy, noting that further easing in December “is not a foregone conclusion.”

“The market was already lacking positive cues, and now the Fed’s hawkish approach could make things worse by reducing expectations of further rate cuts domestically,” a trader at an AMC said.

“The 10-year yield could test 6.55%.”

The Reserve Bank of India’s policy minutes had shown room for rate cuts earlier this month, as inflation outlook remained benign.

However, bond market sentiment has been unsettled by expectations that ongoing trade negotiations could lead to lower US tariffs on Indian exports, potentially limiting the room for future policy easing.

Investors will also watch the RBI’s 320 billion-rupee ($3.62 billion) bond sale on Friday for cues on demand.