INDIA BONDS-India bond yields seen lower as data hints Fed may pause rate hikes

Reuters · 05/11/2023 02:32
INDIA BONDS-India bond yields seen lower as data hints Fed may pause rate hikes

By Bhakti Tambe

- Indian government bond yields are expected to decline in the early session on Thursday, tracking U.S. peers, after the country's inflation data suggested that the U.S. Federal Reserve will pause its rate hike cycle.

The 10-year benchmark 7.26% 2033 bond yield IN072633G=CC is expected to be in the 7.00% to 7.06% range, a trader with a private bank said, after closing at 7.0405% in the previous session.

"While Fed’s pause is likely sooner than later, evidence of cuts is visible yet. After the recent pause, RBI is likely to hike one more time if Fed’s cut is in sight," said Anitha Rangan, an economist at Equirus.

Fed funds futures are currently pricing in a 94.6% likelihood of a pause in the June meeting from around 82% on Wednesday. The Fed fund rate currently stands at 5.00-5.25%. FEDWATCH

Last week, the Fed hiked rates by 25 basis points (bps), as expected, but hinted at a pause in its monetary policy tightening cycle.

U.S. Treasury yields fell on Wednesday, as the April consumer price data came in roughly in line with economists' expectations, a relief to some investors who were concerned that price pressures may have been stronger than expected.

"After the U.S. data, market remains a buy on dips and broadly a pause is priced in. Now supply demand dynamics will kick in slowly leading to steepening again in few weeks," the trader said.

India's benchmark bond yield is expected to find a strong resistance at 7% as broader market expectations remain the same, a trader with a foreign bank said.

"There's a scope for some sharp movement in yields if local inflation throws a positive surprise."


** Brent crude futures LCOc1 contract 0.3% higher at $76.68 per barrel after falling 1.3% in the previous session

** 10-year U.S. Treasury yield US10YT=RR at 3.4252% and two-year yield US2YT=RR at 3.9119%

(Reporting by Bhakti Tambe; Editing by Varun H K)