MUMBAI: Indian government bond yields were barely changed on Monday as traders remained focused on the US Federal Reserve’s monetary policy decision due mid-week, with odds tilting towards a larger interest rate cut.

The benchmark 10-year yield was at 6.7922%, compared with its previous close of 6.7904%.

A scheduled debt market holiday was shifted to Wednesday.

“Since the holiday has been adjusted at the last minute, we may see volumes getting impacted and the benchmark yield should remain around the 6.79%-6.80% levels,” a trader with a private bank said.

US yields stayed lower as the possibility of a supersized cut gained ground.

The probability of a 50-basis-point cut has more than quadrupled to 59% from just 14% last week, with a total of 119 bps in cuts now expected in 2024.

The Fed decision is due on Wednesday and will include its updated economic projections, the dot plot and commentary from Chair Jerome Powell.

DBS said the room for cuts has opened as sub-3% inflation and above-5% policy rate don’t sit well together, but the magnitude of rate cuts priced in by markets looks excessive.

India bonds not reacting to strong domestic growth, yields little changed

It said that for 200-bps-plus of rate cuts, recession risks would have to spike, which is unlikely, and it expects aggregate rate cuts of 150 bps by the end of 2025.

Local sentiment got some support from the Reserve Bank of India cancelling treasury bill auctions worth 400 billion rupees ($4.77 billion) which were due in September.

The yields on such papers dropped to their lowest in nearly a year and a half, with the market anticipating lower supply in the upcoming quarter.

Chandresh Jain, Asia rate and FX strategist at BNP Paribas expects overnight indexed swaps to outperform bonds once the global easing cycle begins.