MUMBAI: Indian government bond yields are expected to fall marginally in early session on Wednesday as US inflation reading reinforced bets that the Federal Reserve will maintain the status quo on policy rates.
The benchmark 7.26% 2033 bond yield is expected to be in the 6.98-7.03% range after closing at 6.9998% in the previous session, a trader with a primary dealership said.
The yields could downtrend at the open, but since they are closer to the technical level of 6.98%, any major move is unlikely, the trader said.
“Since US yields reversed direction, we may not be surprised if Indian bonds follow a similar course.”
US consumer prices increased 0.1% last month after gaining 0.4% in April, but price pressures remained strong supporting the view that the Federal Reserve would keep interest rates unchanged on Wednesday while adopting a hawkish posture.
In the 12 months through May, the CPI climbed 4.0% and this is the smallest year-on-year increase since March 2021 and followed a 4.9% rise in April.
The 10-year US yield fell briefly after the data but ended seven basis points higher on Tuesday at 3.84%.
Indian bond yields may dip as inflation eases, Fed meet remains key
The inflation reading gives the Fed room to skip a hike in June, with some encouragement from the sustained decline in “supercore” inflation and slowing rental inflation, said Madhavi Arora, lead economist at Emkay Global.
The odds of a pause by the US central bank currently stand at over 91%.
The Fed has raised rate by 500 basis points since March 2022 to 5.00%-5.25%.
Meanwhile, domestic sentiment remains buoyed after retail inflation eased to an over two-year low of 4.25% in May from 4.7% in April, moving closer to the Reserve Bank of India’s target of 4% and staying within its 2%-6% range for the third straight month.
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