Indian bond yields seen lower tracking US peers; budget aids sentiment

MUMBAI: Indian government bond yields are expected to fall on Thursday tracking a similar move in US peers, after the Federal Reserve’s commentary was viewed as dovish, while a rate hike was already factored in.

The benchmark 10-year yield could move in the 7.25%-7.30% range, a trader with a private bank said. The yield closed down at 7.2774% on Wednesday, its lowest level in seven weeks and posted its biggest single-session fall in two months. It has dropped 12 basis points in the last two sessions.

“The Fed’s tone is being viewed as dovish and the market is convinced that the rate-hike cycle is nearing its end very soon, so we should see some follow-up buying today,” the trader said.

The 10-year US yield eased below 3.40% on Wednesday after the Fed raised interest rates by an expected 25 basis points, but the market insisted on finding a dovish stance from the US central bank.

Fed policymakers at the end of a two-day meeting said “ongoing increases in the target range will be appropriate” for policy to be “sufficiently restrictive to return inflation to 2% over time.”

Indian bond yields seen little changed ahead of budget announcement

Capital Economics expects only one more 25 bps hike in March by the Fed, and “even that is not fully guaranteed given how quickly the data is shifting.”

The Fed policy will be followed by the Reserve Bank of India’s policy decision next Wednesday, where the central bank is widely expected to hike rates.

Bond yields dropped on Wednesday after the government said it aims to gross borrow 15.43 trillion rupees ($188.83 billion) through the sale of bonds in 2023-24, while keeping the net borrowing at 11.81 trillion rupees.

A Reuters poll had pegged the gross borrowing at 16 trillion rupees.

ANZ Research said, the underlying borrowing programme remains heavy but does not come as a surprise and from the standpoint of execution, the RBI will have to eventually provide liquidity support.

Bond market sentiment also remained supported as the government will sell 120 billion rupees of a new 10-year paper on Friday, which will replace the existing benchmark in the coming weeks.