MUMBAI: Indian government bond yields trended lower at the start of the week as US Treasury yields fell, with the key part of the yield curve moving below the critical level of 4.20%.
The benchmark Indian 10-year yield was at 7.0528% as of 10:00 a.m. IST, following its previous close of 7.0572%.
“US yields were one of the bearish factors acting as a hindrance for local bonds, but if the move below 4.20% sustains, the Indian 10-year benchmark yield could ease to 7%,” a trader with a state-run bank said.
US yields eased on Friday, with the 10-year yield easing to levels last seen three weeks ago after US manufacturing slumped further in February, marginally improving bets for May rate cuts by the Federal Reserve.
The odds for a rate cut in May improved to 28%, up from 24% last week, according to the CME FedWatch tool, while the focus for the week will be on Fed Chair Jerome Powell’s testimony to lawmakers on Thursday and the February US jobs data on Friday.
Back home, lower-than-scheduled supply from Indian states this week is also aiding sentiment, which is further enhanced by the fact that central government debt supply has ceased for the year, traders said.
Indian states aim to raise 279.81 billion rupees ($3.38 billion) through the sale of bonds, against the 381.66 billion rupees on the calendar.
India bonds not reacting to strong domestic growth, yields little changed
Meanwhile, India’s economy grew 8.4% in the October-December quarter, much faster than estimates of 6.6% and also higher than the 7.6% growth in the previous three months, but this did little to alter rate cut expectations.
However, the third-quarter GDP print may be overstating growth, economists said, pointing to a more modest increase in gross value added in the economy.
In February, the central bank kept rates unchanged for a sixth consecutive time and reiterated its commitment to meet its 4% inflation target on a sustainable basis.
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