Indian bond yields to tumble as US yields crash after inflation cools

MUMBAI: Indian government bond yields are expected to open sharply lower on Friday, after Treasury yields crashed as data showed US inflation cooled in October, fuelling expectations that the Federal Reserve could slow its pace of interest rate hikes.

The benchmark 10-year yield is likely to be in a 7.25%-7.30% band for the session, a trader with a private bank said, pegging the open to be in a 7.27%-7.28% range.

The yield ended lower for a fourth straight session at 7.3462% on Thursday and has fallen by 13 basis points (bps)in the last four sessions.

“There will be a gap down opening in terms of yields and this would be a major breakout as the direction has changed materially after a surprise reading in inflation,” the trader said.

US yields plummeted, with both the two-year and the 10-year yields plunging over 30 bps on Thursday, their biggest single-session declines in over 13 years.

US consumer prices rose less than expected in October, pushing the annual increase below 8% for the first time in eight months.

The consumer price index (CPI) rose 0.4% last month, after climbing by the same margin in September.

Economists polled by Reuters had forecast the CPI would advance 0.6%.

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In the 12 months through October, the CPI increased 7.7%, after rising 8.2% on the same basis in September. Excluding the volatile food and energy components, core CPI increased 0.3% last month, after gaining 0.6% in September.

Economists expected core CPI to gain 0.6%. The rates futures markets have now priced in an 80% chance of a 50-bps hike in December, from nearly 55% ahead of the data, according to the CME FedWatch Tool.

The Fed has already raised rates by 375 bps since March.

Meanwhile, bond market participants expect the benchmark yield to see some resistance at the 7.25% mark due to the debt auction.

New Delhi is to raise 280 billion Indian rupees ($3.47 billion) through the sale of bonds, which includes 120 billion rupees of the benchmark paper.