Indian government bond yields are likely to be marginally lower in the early session on Tuesday, as U.S. yields ease after their concerns of a technical breakout are allayed for now. The benchmark 7.26% 2033 bond yield is expected to be in the 7.10%-7.15% range after ending the previous session at 7.1337%, a trader with a primary dealership said.
“In yesterday’s late trades, there was some recovery in bonds, and with 10-year U.S. yields easing to 4%, we could see some more buying momentum in local debt,” the trader said. U.S. yields eased on Tuesday and the inversion in a key part of the yield curve contracted as investors waited for inflation data, due on Wednesday, for further clues on whether price pressures are continuing to moderate.
The Fed had paused its rate hike cycle in June, but the minutes released last week reiterated that it may raise rates by another 50 bps in 2023.The odds of a 25-bps hike in July remain around 91%.Indian bond yields have also been inching higher, tracking the massive upward move in U.S. peers. However, brokerage CLSA expects the benchmark bond yield to settle at 7% for this financial year and sees a risk of a temporary selloff if the Fed hikes rates by another 50 bps. Traders will also eye June’s local inflation print, also due on Wednesday, for cues on the Reserve Bank of India‘s next monetary policy move.