MUMBAI: Indian government bond yields inched lower in early trading on Monday, tracking a fall in US Treasury yields after data reaffirmed bets that the Federal Reserve will cut interest rates later this month.

However, the fall was capped after Friday’s selloff following the Reserve Bank of India’s monetary policy decision, which was largely priced in by the market.

The benchmark 10-year yield was at 6.7284% as of 10:00 a.m. IST, compared with its previous close of 6.7446%.

“As anticipated, benchmark bond yield has slightly reversed from 6.75% levels, and for the next couple of sessions, yield should be in 6.71%-6.75% zone,” a trader with a private bank said.

US yields fell on Friday after the release of November payrolls data, which investors considered as a green light to one more rate cut by the Federal Reserve later this month.

The 10-year Treasury yield eased to its lowest level in seven weeks on Friday, and was around 4.15% in Asian hours.

The odds of a 25 basis points rate cut from the Federal Reserve on Dec. 18 have risen to 83% from 66% last week.

India bond yields may inch up tracking US peers

Back home, bond yields closed higher on Friday, with the 10-year yield posting its biggest one-day rise in six months after the RBI maintained policy rates and cut banks’ cash reserve ratio for the first time since March 2020.

The CRR has been reduced by 50 basis points to 4%, effective in two tranches starting from Dec. 14 and Dec. 28.

This move will infuse 1.16 trillion rupees ($13.70 billion) into the banking system.

“The policy decision is a disappointment to us, in light of the soft growth signals and given lags in policy transmission,” Nomura economists Sonal Varma and Aurodeep Nandia said in a note.

Most market participants are now anticipating the RBI to deliver 25 bps rate cut in February.