MUMBAI: Indian government bond yields dropped on Thursday, with the benchmark bond yield easing below 7% for the first time in over 13 months after the US Federal Reserve hinted at a pause following a widely-expected rate hike.
The spread between the 10-year benchmark bond yield and the Reserve Bank of India’s repo rate has fallen below 50 basis points, the first such instance since September 2017.
The 10-year benchmark 7.26% 2033 bond yield was at 7.0076% as of 10:00 a.m. IST, after closing at 7.0057% in the previous session. Earlier in the day, the yield had dipped to 6.9786%, the lowest since April 8, 2022.
“As expected, benchmark yield breached the key 7% level in opening trade, but now the focus will shift to debt sale and yield should consolidate around the 7% handle until then,” a trader with a private bank said.
New Delhi aims to raise 330 billion rupees ($4.04 billion) through a sale of bonds, which includes 140 billion rupees of the benchmark 2033 paper.
US Treasury prices jumped, with yields crashing further after the Fed signalled a pause in its tightening cycle following an expected 25 basis-point(bp) rate hike on Wednesday.
The Fed fund rate now stands at 5.00-5.25%. Fed Chair Jerome Powell said it was now an open question whether further increases will be warranted in an economy still facing high inflation but also showing signs of a slowdown with looming risks of a tough credit crackdown by banks.
“We are closer, or maybe even there,” Powell said.
Indian bond yields rise tracking US peers, Fed meet eyed
The US rate futures market is now pricing in a pause at the June and July meetings, and a rate cut by September.
The market expects cuts between 50 bps and 75 bps by the end of this year.
The 10-year US yield was at 3.33%, while the two-year yield was at 3.80%. Sentiment also improved after the benchmark Brent crude futures contract slid further to its lowest level in nearly two months.
It was at $72.80 per barrel after easing about 9% in the last two sessions.
Easing oil prices bode well for India’s inflation outlook as the country is one of the largest importers of the commodity.
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