MUMBAI: Indian government bond yields are expected to hold steady in early trading on Monday amid a lack of fresh cues.
However, broader sentiment will likely get a boost by the inflows after domestic bonds are included in JPMorgan’s emerging market debt index later this week.
India’s benchmark 10-year yield is likely to move in a 6.95%-6.99% range on Monday, following its previous close of 6.9723%, a trader with a primary dealership said.
Inflows into bonds under the Fully Accessible Route (FAR), which will be included in JPMorgan’s index, crossed the $10 billion mark last week since the inclusion was announced in September.
Foreign banks also stepped up purchases of bonds last week ahead of the inclusion on June 28 and this is expected to continue.
Meanwhile, US Treasury yields wavered in quiet trade on Friday after a surprisingly strong business activity report indicated that the Federal Reserve has another reason to hold off easing interest rates.
Fed funds futures suggest the probability of a Fed ease in September is 66% and traders are pricing in one to two rate cuts of 25 bps each this year.
In India, the central bank’s rate panel has diverged further in its views on the need for high interest rates to tame inflation, with some fearing economic growth is being sacrificed, minutes of the June monetary policy meeting showed.
India bond yields seen easing as government cuts T-bill supply
“A case for longer pause continues… Even though prospects of domestic inflation led by food do have a case for softening, it will not be until monsoon and crop harvest concludes,” said Anitha Rangan, an economist at Equirus Group.
“Meanwhile, with Fed’s rate cut getting pushed back further, Reserve Bank of India may not find it appropriate to act in 2024 or even in early 2025.”
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