MUMBAI – Indian government bond yields ended lower for a second consecutive session on Tuesday, as U.S. yields fell on expectations that the Federal Reserve may slow down interest rate hikes.
Investors now await the Fed’s commentary later in the day and inflation readings for India and the United States, both due on Thursday, as the next major triggers.
The benchmark 10-year yield ended at 7.3133%, after closing at 7.3427% on Monday.
“Federal Reserve Chair Jerome Powell’s speech today and U.S. inflation numbers on Thursday will lend some cues to markets,” said VRC Reddy, treasury head of Karur Vysya Bank. “The 7.32% level will act as a strong resistance and buying interest may emerge at 7.35-36 levels.”
U.S. Treasury prices gained further on Monday, with the 10-year yield easing near the crucial 3.50% level. The rally in Treasury prices comes after data showed U.S. services activity contracted for the first time in more than 30 months in December and wage growth slowed.
The data bolstered bets that the Fed may slow down after raising its policy rate by 425 basis points in 2022.
Meanwhile, India’s retail inflation for December is likely to remain steady at 5.90%, after easing to 5.88% in November, a Reuters poll of economists showed. The RBI aims to maintain inflation within the 2%-6% band.
Major focus also remains on the federal budget due on Feb. 1, where the government will focus on fiscal consolidation according to a Reuters poll.
The median forecast from 37 economists polled from Dec. 13 to Dec. 21 was for the government to limit borrowing to 6.0% of the gross domestic product.
Goldman Sachs expects the government to announce a net borrowing of around 13 trillion rupees ($158.44 billion) for the next financial year, and target a fiscal deficit of 5.9% of gross domestic product.
“On the demand side, we expect bond purchases by commercial banks in FY24 to be lower than FY23 levels, as credit growth increases. Insurance companies are likely to see strong AUM growth and soak up nearly one-third of incremental bond supply,” the foreign brokerage said in a report. ($1 = 82.0475 Indian rupees)
(Reporting by Dharamraj Dhutia Editing by Saumyadeb Chakrabarty)
