Indian government bond yields extended decline on Friday tracking losses in US Treasury yields on bets of an interest rate cut by the US Federal Reserve in September. India’s benchmark 10-year yield dropped to 6.9779% from its previous close at 6.9872%.
The US treasury yields were lower after data showed a cooling labour market and price pressures. The 10-year yield hit a more than two-month low after the US producer price index for final demand dropped 0.2% in May after advancing 0.5% in April, and below the 0.1% increase forecast by economists polled by Reuters.
A softer-than-expected US retail inflation print has increased bets of an interest rate cut from the Fed this year. The futures market is pricing in 50 basis points of rate cuts this year, according to the CME FedWatch tool, even though the Fed this week slashed its forecast to only one 25 basis point cut in 2024.
“Indian bonds yields have drifted lower this week after the India and US CPI, despite the Fed not being very dovish with the monetary policy tone. Yesterday’s US economic data was dismal and it has indicated slowdown in the Labour market which will keep Indian bond yields subdued but focus remains on today’s gilt auction of ₹340 billion, as the demand is pretty good in the market,” said an economist with a private bank.
She believes the Indian bond yields to trade in the range of 6.95% - 7.00% during the day.
The Indian government plans to raise ₹34,000 crore ($4.07 billion) through the sale of bonds, which includes a new seven-year paper, on Friday.
India’s consumer price index (CPI) inflation also moderated slightly to 4.75% in May from 4.8% in April.
Meanwhile, India's bond market sentiment has been upbeat as the inclusion of bonds in JPMorgan's emerging market debt index is likely to result in inflows worth between $20 billion and $25 billion into Indian government bonds.
Moreover, investors now look out for the government’s fiscal consolidation path in the upcoming Union Budget.
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