MUMBAI: Indian government bonds rose on Wednesday, in sync with U.S. Treasuries, as traders bought in anticipation of a dovish Federal Reserve policy outcome, while a stronger rupee added to the comfort.
The yield on the 10-year benchmark ended at 6.4726%, lower than Tuesday’s close of 6.4925%. Bond yields move inversely to prices.
The yield on the U.S. 10-year bond was at 4.01%, after falling nearly 5 bps over the last three sessions.
The U.S. Fed’s policy decision is due after market hours. Market participants have already factored in a 25 basis point cut, with a slim chance of 50 bps.
The odds of an aggregate 75 bps of rate cuts through December stand at 74%, according to the CME FedWatch Tool.
A strengthening rupee is also bolstering confidence in the domestic debt market, traders said, prodding them to build positions.
The rupee ended at 87.8150, up 0.27% on the day, its best one-day gain since August 19.
India bonds fall as inflation tempers rate cut bets
“Traders are betting on dovish commentary from the FOMC, the rupee has strengthened and chances of a trade deal with the U.S. have improved,” a trader at a state-run bank said, “All factors are aiding sentiment.”
The revival of the Fed’s easing cycle could also make room for the Reserve Bank of India to resume policy easing, traders said.
“The risks are skewed towards further monetary easing with tariff-related uncertainty and a benign inflation outlook,” Pranjul Bhandari, chief India strategist at HSBC wrote in a note.
HSBC sees the 10 year bond yield dropping to 6.00% by 2025 year end.
Rates
India’s overnight index swaps dipped on anticipation of a dovish Fed.
The one-year OIS rate and the two-year OIS rates were down by 1.25 bps at 5.455% and 5.43% respectively, The liquid five-year OIS rate dropped nearly 2 bps to 5.6850%.