India bond yields may dip amid strong local demand; Fed meet eyed

MUMBAI: Indian government bond yields are expected to ease marginally in early trading on Tuesday amid strong domestic demand, while US yields continue to slip ahead of the Federal Reserve’s monetary policy decision this week.

The benchmark 10-year yield is expected to rise between 6.90% and 6.94%, compared to its last closure of 6.9184%, the lowest level since April 2022, according to a trader with a private bank.

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“There could be some demand early into the day, as banks would continue to add after the central bank’s proposed liquidity norms, while globally also, everything is supporting the bulls for now,” according to the trader.

US Treasury rates fell as investors anticipated the Fed’s policy announcement, which is coming after Indian market hours on Wednesday and is likely to indicate the start of rate decreases in September.

Investors will also pay special attention to Chair Jerome Powell’s speech, as any dovish tilt may solidify bets on a 75 basis point drop in 2024.

Investors have priced in 66 basis points of rate decreases until the end of the year, according to the CME FedWatch tool.

Back home, demand from local banks has surged because the Reserve Bank of India issued draft rules to strengthen lenders’ liquidity resilience, which, if followed, might enhance demand for government assets.

Meanwhile, the RBI said on Monday that new government bonds with 14-year and 30-year maturities will no longer be available to foreign portfolio investors under the fully accessible way.

Market participants also noted that the drop in oil prices helps mood.

The benchmark Brent crude futures dipped below $80 per barrel for the first time in seven weeks, citing concerns about Chinese demand.

India is one of the world’s major crude oil importers, and continued price declines augur positively for the country’s inflation forecast.