Indian bond yields may track US peers lower after Fed chair hints at rate cut

MUMBAI: Indian government bond yields are expected to start the week with a fall on Monday, amid moderate reversal in sentiment as US yields drop after Federal Reserve Chair Jerome Powell hinted at an interest rate cut next month.

The benchmark 10-year bond yield is expected to trade in a range of 6.52%-6.55%, after ending at 6.5510% on Friday, a trader with a private bank said.

“Finally, there is some positive news that would give confidence to bond bulls, who suffered last week.

But still, the path to decline would not be very easy, and profit booking could cap the move.“ US yields sank on Friday, after Powell alluded to a possible interest rate cut at the central bank’s policy meeting next month, saying that risks to the job market were rising but also noting inflation remained a threat and that a decision was not set in stone.

Though the comments were not very direct, investors quickly bumped up bets that the Fed will reduce rate by 25 basis points, with the odds for the same rising to nearly 90%, according to CME FedWatch Tool.

Back home, the market remains worried after the planned sweeping cuts to India’s Goods and Services Tax (GST), including moving to a two-rate structure of 5% and 18%, scrapping the 12% and 28% rates.

A state ministers’ panel has backed the new structure, fuelling more concerns and leading to fears of fiscal slippage that could nudge the government to undertake additional borrowing.

The GST council will meet on September 3-4 to discuss these changes.