MUMBAI: Indian government bond yields fell on Tuesday, with the 10-year yield hitting 6.75%, a day before the Federal Reserve’s monetary policy decision where the U.S. central bank could deliver an outsized interest rate cut.
The benchmark 10-year yield was at 6.7620% as of 10:00 a.m. IST, compared with its previous close of 6.7613%. Earlier in the day it had dropped to 6.7517%, the lowest level since Feb. 28, 2022.
Indian debt markets are closed on Wednesday for a public holiday, while the Fed decision is due late in the evening.
The decision will be accompanied by updated economic projections, the dot plot and commentary from Chair Jerome Powell at a press conference.
“Market has almost fully factored in a 50-basis-point cut, and if it is not delivered, we could see some correction, depending on rate cut projections for the next few months,” a trader with a primary dealership said.
The 10-year U.S. yield remained close to the 3.60% mark, as the possibility of a supersized cut continued to rise. The probability of a 50-bp move has jumped to 67% from just 14% last week.
India bond yields start flattish, with eyes on Fed decision
A larger rate cut from the Fed could encourage the Reserve Bank of India to start policy easing sooner than anticipated, traders said. As of now, majority do not expect any rate action at least till December.
Local sentiment was also supported after the RBI cancelled treasury bill auctions due in September, which would help banking system liquidity conditions around the quarter-end.
Traders will also focus on Friday’s debt supply as New Delhi will raise 310 billion rupees ($3.70 billion) which includes 200 billion rupees of benchmark paper.
Indian states will raise 135 billion rupees via debt sale later on Tuesday.
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