MUMBAI: Indian government bond yields are expected to trend largely unchanged in early deals on Wednesday, as market participants await US inflation data while keeping an eye on moves in US Treasury yields as well as the local currency.
The 10-year bond yield is likely to move between 6.80% and 6.84%, a trader with a private bank said, compared with its previous close of 6.8218%.
“After some position building in late trade yesterday, bonds should be rangebound today, and any major action can be expected once the inflation data is out,” the trader said.
US retail inflation data for December is due after Indian market hours on Wednesday, and a Reuters poll predicts consumer prices to have risen 0.3% month-on-month and 2.9% on a 12-month basis.
In India, inflation eased to a four-month low of 5.22% in December, down from 5.48% in November and also lower than economists’ expectations of 5.30%.
The rupee ended at a record low of 86.63 on Tuesday due to strong dollar bids spurred by the maturity of positions in the non-deliverable forwards (NDF) market.
The currency posted its worst single-day decline in more than two years on Monday.
The currency is expected to rise marginally on Wednesday.
India bond yields rise in lead up to domestic inflation data
US Treasury yields remain elevated, with the 10-year yield hovering around its highest since November 2023 during Asia trade on receding hopes of rate cuts from the Federal Reserve.
Treasury yields were also higher on concerns that the incoming Donald Trump administration’s policies could reignite inflation, leading to fewer rate cuts.
Markets have fully priced in a pause for the Fed’s January meeting.
Futures pricing also implied just 30 bps of easing in 2025, or one 25-bp cut, LSEG data showed, and that cut will most likely be in July or September.
Two weeks ago, the rates market had priced in 49 bps of cuts, or about two reductions of 25 bps each.
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