MUMBAI: Indian government bond yields moved marginally higher early on Thursday, partly reversing their fall from the previous session and tracking a similar move by US Treasury yields after US inflation data disappointed bond bulls.
The benchmark 10-year yield was at 6.8331% as of 10:00 a.m. IST, compared with its previous close of 6.8271%, the lowest since March 30, 2022.
“The last hope for a large rate cut from the Federal Reserve next week is now completely off the table, and hence we could see some position realignment today, especially after yesterday’s addition to long bets heavily,” the trader said.
US consumer prices rose marginally in August, but underlying inflation showed some stickiness, which could discourage the Federal Reserve from delivering a 50 basis point cut on Sept. 18.
Consumer price index rose 0.2% after climbing 0.2% in July, while for the 12 months through August, the CPI advanced 2.5%, following a 2.9% increase in July.
Economists polled by Reuters had forecast the CPI gaining 0.2% on-month and 2.6% on-year. While rates traders have factored in a 25 bps cut, the odds of a 50 bps rate cut have dropped to 15%, as compared to over 44% at the start of the week, due to sticky core inflation.
Indian bond yields may track US peers lower
Brokerage Capital Economics said in a note it expects the Fed to begin its rate cutting cycle with a measured 25 bps reduction and forecasts a soft landing with 200 bps reduction in the easing cycle.
Traders are also eyeing India’s retail inflation, which is due after market hours, and a Reuters poll predicts consumer price inflation at 3.50% in August on-year, little changed from a five-year low of 3.54% in July.
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