MUMBAI: Indian government bond yields are likely to be largely unchanged in the early session on Wednesday, after easing for the last two sessions, as traders await fresh triggers for further directional moves.

The benchmark 7.26% 2033 bond yield is expected to be in the 7.05%-7.10% range after ending the previous session at 7.0566%, a trader with a primary dealership said.

“Bonds have already rallied and have factored in major positives, so for further rally from this point, we will need actual positive change, and till then bonds would be in a very narrow range,” the trader said.

Bond yields have been easing recently, tracking sharp receiving in overnight indexed swap (OIS) rates amid strengthening bets of the US Federal Reserve pausing its rate hike cycle after July.

The five-year OIS has slumped 25 basis points (bps) in the last six sessions, especially after softer-than-expected US inflation print bolstered the argument against further rate hikes by the U.S Federal Reserve.

US yields have also plunged during the same period, with the 10-year yield down by over 30 bps.

India bond yields seen slightly higher post central bank inflation comments

Markets will closely watch Fed Chair Jerome Powell’s tone at the US central bank’s July 25-26 meeting, where a rate hike is already factored in, and commentary would be crucial.

The odds of a 25 bps hike in July remain around 92%, but that of another hike after that have come down sharply. “July should be the last hike in this cycle, notwithstanding the dot plot pencilling in one more hike,” ICICI Securities Primary Dealership said in a note.

“The corollary of not going through with the last hike is that the Fed will be more gradual in cutting rates in CY24 given that the dot plot only estimates 3 or 4 cuts of 25 bps each next year.”

Meanwhile, traders await fresh supply as New Delhi will raise 310 billion rupees ($3.78 billion) through sale of bonds on Friday, which includes 140 billion rupees of a new 14-year bond.