MUMBAI: Indian government bond yields are likely to trend unchanged in the early session on Thursday after the US inflation data reinforced the likelihood of the Federal Reserve pausing rate hikes next week, but elevated oil prices may weigh.
The new 10-year benchmark 7.18% 2033 bond yield is likely to trade in the 7.16%-7.20% range on Wednesday after ending the previous session at 7.1738%, a trader with a private bank said.
The US Treasury yields edged lower on Wednesday despite the US consumer price index rising 0.6%, the largest gain since June 2022, as the underlying pace of inflation eased in August.
The Fed is seen keeping interest rates on hold in its policy next week but the odds of an increase in November are now around 40%.
Market participants will also track the movement in oil prices, which edged higher on Thursday after dipping slightly in the previous session, as markets refocused on expectations of tight crude supply for the rest of 2023.
Indian government bond yields had eased on Wednesday on lower-than-expected local inflation data. CPI eased to 6.83% in August from 7.44% in July but remained above the Reserve Bank of India’s (RBI) target band for a second consecutive month.
The RBI held its key lending rate steady at 6.50% in its August policy.
At the October meeting, Citi expects the monetary policy committee to acknowledge the positive developments on the inflation front and tone down its inflationary concerns.
“However, it might be too early to signal any monetary easing given weather-related risks,” Citi Research said in a note.