MUMBAI: Indian government bond yields were lower in early session on Thursday, tracking U.S peers on rising bets that the US Federal Reserve’s rate hike a day before was its last for this cycle.
The benchmark 7.26% 2033 bond yield was trading at 7.0878% as of 10:00 a.m. IST, after ending the previous session at 7.0965%. “Yields are reacting as the market expects the Fed to be done with hikes for now.
But since most of the move was already front-loaded, we are not seeing any major fall in yields,“ a trader with a primary dealership said.
US yields dipped on Wednesday after the Federal Reserve raised interest rates by a widely expected 25 basis points (bps) and indicated another increase, but market participants were unconvinced of another round of hikes.
The benchmark overnight interest rate is now at 5.25%-5.50%, a level last seen just prior to the 2007 housing market crash.
Indian bond yields steady ahead of Fed policy decision
“The (Federal Open Market) Committee will continue to assess additional information and its implications for monetary policy,” the Fed said.
The 10-year yield was trading around 3.85%, while the two-year yield, which is more sensitive to interest rates was around 4.83$, with the inversion easing below 100 bps.
Given the resilience of US growth and strength of the labour market, the last mile movement towards 2% inflation target may take longer. Hence another rate hike cannot be completely ruled-out,“ Gaura Sen Gupta, an economist at IDFC First Bank said.
The US rate futures market has placed the odds of another hike in September meeting are 21%, up from around 14% before latest Decision.
Back home, focus would be on fresh supply of bonds on Friday, wherein New Delhi will aim to raise 330 billion rupees ($4.03 billion) through the sale of bonds, which includes 140 billion rupees of benchmark paper.
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