MUMBAI: The mini rally in Indian bond prices, which dragged the 10-year government bond yield to a three-week low, is set to halt on Wednesday as US yields jumped following robust labor and services data.
The 10-year bond yield is likely to move between 6.74% and 6.78%.
The yield had dropped to a three-week low of 6.73% on Tuesday, before ending at 6.7483%.
For yields to fall significantly from the current level “conditions need to be much more helpful” than what they are, a fixed-income trader at a bank said.
“I am sitting on a core position which is not big. (I) will simply be holding on to that and not add to it.”
US Treasuries sold off on Tuesday, lifting the 10-year yield to an eight-month high, following data that indicated a healthy labour market and an acceleration in services activity.
US job openings in November rose more than expected and a gauge of US services accelerated in December, sending the 10-year yield to 4.70%.
India bond yields to push higher after US rates reverse decline
Current levels of US Treasury yields indicate significant worries on duration and are now consistent with expectations of a robust US economy, DBS Bank said in a note.
The data suggested the Federal Reserve’s forecast that it will cut rates only twice this year is likely to hold up.
The US central bank signalled a slower pace of rate cuts at its December meeting.
Interest rate futures are currently pricing in just one-and-half rate cuts in 2025.
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