MUMBAI: Indian government bond yields rose in the early session on Wednesday as bets of aggressive rate cuts from the US Federal Reserve eased following cautious comments from a central bank official.
India’s benchmark 10-year yield was at 7.1504% as of 10:00 a.m. IST, after its previous close at 7.1460%.
“Indian bond yields will closely track movements in Treasuries, and significant local moves may not occur until the 10-year yield falls below the 4% handle,” a trader with a state-run bank said.
US bond yields ended higher on Tuesday, reversing the recent bullish tone amid a resistance to expectations of aggressive interest rate cuts.
The US is “within striking distance” of the Federal Reserve’s 2% inflation goal, but the central bank should not rush towards cuts in interest rate until it is clear lower inflation will be sustained, Fed Governor Christopher Waller said on Tuesday.
Waller’s comments are crucial, as his views in November had triggered talks of a policy pivot from the Fed.
The 10-year US yield surged to 4.08% on Tuesday and stayed around 4.05% mark in Asian hours on Wednesday, while the odds of a Fed rate cut in March eased to nearly 67% from 81% on Friday, according to CME FedWatch Tool.
Local bond yields eased earlier in the week, after India’s core inflation declined in December.
India bonds consolidate after rally, traders eye state debt sale
A sustained fall in inflation could prompt the Reserve Bank of India (RBI) to ease its policy stance to ‘neutral’ as early as next month, economists said.
The RBI has held rates steady since April 2023, following a 250 bps increase in the previous financial year.
Traders also await fresh supply of debt as New Delhi plans to raise 350 billion rupees ($4.21 billion) through a sale of bonds on Friday, with the central bank set to auction Treasury bills worth 270 billion rupees later in the day.
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