India bond traders stay pat ahead of inflation data

MUMBAI: Indian government bond traders held back from taking fresh positions on Wednesday, keeping prices rangebound, on caution ahead of January inflation data that could offer clues about the central bank’s rate path going forward.

The 10-year benchmark 6.48% 2035 bond yield was at 6.7279% at 10:45 a.m. IST.

It had settled at 6.7246% on Tuesday, after rebounding from a two-day market rout. Bond yields rise when prices fall. India’s consumer inflation rate likely rose for a third consecutive month to 2.4% in January, according to a Reuters poll.

This will be the first month of a new data series based on 2024 prices and it is the first time since August that inflation may return within the Reserve Bank of India’s 2%-6% target band.

The data will be out on Thursday.

The RBI had also raised its inflation projection for the current financial year to 2.1% from 2.0% at its February policy meeting, while leaving the repo rate unchanged, reinforcing bets that the rate-cut cycle may be over.

The five-year swap rate and the 10-year government bond yield are also back near levels seen a year ago, despite 125 basis points of rate cuts and $100 billion of liquidity injections by the RBI since then.

During the day, a sharp drop in US Treasury yields could lend some support to Indian bonds, but lingering supply concerns are likely taking precedence, traders said.

The 10-year US Treasury yield fell more than 5.5 bps in previous session and overnight trade to 4.14%.

Indian states raised 476 billion rupees ($5.26 billion) on Tuesday without any major pickup in cutoff yields, boosting sentiment in a supply-wary market.