MUMBAI: Indian government bond yields are expected to trade lower in the early session on Wednesday, tracking a similar move in US yields after weak economic data in the world’s largest economy.

The benchmark 10-year yield could move in a range of 7.29%-7.34%, a trader with a private bank said.

The yield ended lower at 7.3243% on Wednesday.

There should be some fall in bond yields as the US 10-year yield has broken the crucial bottom resistance level, the trader added.

US yields dropped after data showed that US retail sales fell more than expected in December and as the Bank of Japan maintained its bond yield cap, reducing concerns that investors would switch out of US debt and into Japanese bonds.

US retail sales were pulled down by a decline in motor vehicle purchases and other goods, putting consumer spending and the overall economy on a weaker growth path heading into 2023.

Weaker economic data may not only force the US Federal Reserve to pause the hiking cycle soon, but also reverse the same by the end of this year, and this pushed the 10-year yield to a four-month low of 3.37%, said traders.

Fed funds futures are now pricing for the benchmark rate to top out at 4.87% in June, down from 4.90% before Wednesday’s data, with rates expected to fall to 4.34% in December.

Indian bonds yields dip on BOJ policy decision, after 3 sessions of rise

Traders in India are focussed on the federal budget that will be tabled on Feb. 1, with the attention on the government’s fiscal consolidation path and its borrowing calendar for the next fiscal.

India is expected to gross borrow a record 16.80 trillion Indian rupees ($206.29 billion), aiming for a fiscal deficit target of 5.8% of gross domestic product, Ashish Agrawal, head of FX and EM macro strategy research, Asia, Barclays, told Reuters.