MUMBAI: Indian government bond yields may open a tad lower on Wednesday, as US yields came off their recent highs, but any major move is unlikely ahead of inflation data from India and the United States and the Federal Reserve’s monetary policy decision later.
India’s benchmark 10-year yield is likely to move in a 7.00%-7.04% range, following its previous close of 7.0139%, a trader with a state-run bank said.
“There could be some bullish bias, but traders will remain fixated mainly on the US inflation data followed by Fed policy guidance and the updated dot plot,” the trader said.
India consumer price inflation likely snapped a four-month downward trend in May due to rapidly rising food costs, according to a Reuters poll of 50 economists that predicted the reading to have picked up to 4.89% from April’s 4.83%.
This would be followed by the US retail inflation print and a Reuters poll estimates the reading for 12 months to May at 3.4%, flat against April.
US yields eased slightly ahead of the data and Fed decision, and while no change in rates is factored in traders would look out for new interest rate forecasts indicated through the dot plot from Fed officials for 2024.
Futures are indicating a 48% probability of a rate cut in the September meeting, down from 67% a week ago.
Markets are also pricing in 40 basis points of cuts in 2024 against nearly 50 bps last week, according to CME FedWatch tool.
India bond yields seen easing as government cuts T-bill supply
Local sentiment strengthened after Prime Minister Narendra Modi’s Bharatiya Janata Party retained key portfolios in the new coalition government, including the finance ministry.
Bond yields also dipped after Reuters on Tuesday reported citing a government official, that the new government has no plans to increase fiscal deficit target despite speculation that more spending might be needed to appease coalition partners.
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