India bond yields seen little changed, 10-yr US yield tops 4

India bond yields seen little changed, 10-yr US yield tops 4.20 percent

Indian government bond yields are likely to trade largely unchanged in the early session on Tuesday, with an upward bias later in the day, as the 10-year U.S. counterpart has risen above the crucial 4.20% mark.

The benchmark 7.26% 2033 bond yield is likely to be in the 7.20-7.24% range after ending the previous session at 7.2047%, a trader with a private bank said. The yield posted its biggest single-session rise in nearly three weeks on Monday.

The 10-year U.S. yields resumed trading in Asian hours after a holiday on Monday and were above the 4.20% handle. Yields have risen after the August non-farm payrolls report showed that the world’s largest economy added more jobs than expected last month.

Still, the odds of another rate hike by the Federal Reserve later this month declined, easing to around 7%.

Back home, traders await the evolving liquidity situation ahead of the Reserve Bank of India’s (RBI) review of its decision to levy incremental cash reserve ratio on banks, which is due by Sept. 8.

Traders are also keeping an eye on the inflation trajectory, and expect another elevated reading for August after the nation’s retail inflation spiked to a 15-month high of 7.44% in July from 4.87% in June.

Nomura expects headline inflation to converge with core inflation at around 4.5% in the medium term, while expecting growth to disappoint and real policy rates to look restrictive on a one-year forward basis. It expects 100 basis points of repo rate cut in 2024.

Meanwhile, Indian states are scheduled to raise 157 billion rupees ($1.90 billion) through a sale of bonds later in the day, and New Delhi will look to raise 330 billion rupees via debt sale on Friday.