India bond yields rise as traders cautious before US inflation data

MUMBAI: Indian government bond yields inched higher in early trade on Tuesday, as traders cut positions after data showed local inflation met estimates and the focus shifted to U.S. inflation data due later in the day.

India’s benchmark 10-year yield was at 7.1023% as of 10:00 a.m. IST, its previous close of 7.0946%.

“There was already a position build-up before the local inflation data which is seeing some unwinding now, and if the 10-year U.S. yield crosses 4.20% after their inflation reading, we may be in for more selloff tomorrow,” trader with a primary dealership said.

India’s retail inflation rate dipped to 5.10% in January from 5.69% in December, and was in line with a 5.09% forecast by a Reuters poll of 44 economists. Economists also estimated core inflation would dip to 3.6% from 3.8% in December; the government does not officially provide core inflation data.

Last week, the Reserve Bank of India left interest rates unchanged, signalling that cuts may be some time away as it reiterated its commitment to meet the medium-term 4% inflation target on a sustainable basis.

India bond yields may inch higher tracking US peers, inflation data key

“The last mile of disinflation is always the most challenging and that has to be kept in mind,” RBI Governor Shaktikanta Das said.

With real rates rising, Barclays expects the RBI to begin easing policy from the April-June quarter, although the Monetary Policy Committee remains vigilant on food prices.

Meanwhile, the 10-year U.S. yield stayed elevated but did not exceed the critical 4.20% mark ahead of the inflation reading, which will offer the next clues on when the Fed is likely to begin cutting interest rates.

The odds of a rate cut by the Fed in May have eased to around 61%, down from 83% last month, with some now believing that the rate easing cycle in the world’s largest economy could start only from June.

Traders await state debt sale worth 175 billion rupees ($2.11 billion) on Tuesday, followed by last central government debt auction for this financial year on Friday.