India Bonds: Indian bond yields seen little changed amid lack of fresh cues

PNB Gilts

20/07/2023 03:49

By Dharamraj Dhutia
       MUMBAI, July 20 (Reuters) - Indian government bond
yields are likely to stay largely unchanged in the early session
on Thursday as traders await fresh triggers like debt supply on
Friday and Federal Reserve policy rate decision next week.
    The benchmark 7.26% 2033 bond yield  IN072633G=CC  is
expected to be in the 7.06-7.10% range after ending the previous
session at 7.0769%, a trader with a primary dealership said.
    "We saw some consolidation yesterday, as traders are not
comfortable to take yields below 7.05%-7.06% levels without any
actual major positive trigger, and today also there would be
sideways movement," the trader said. 
    Bond yields have been dipping in the last few sessions,
tracking their U.S. peers and the moves in overnight indexed
swap (OIS) rates.
    U.S. yields and Indian swaps fell on increasing speculation
that the Fed rate hike next week would be its last in the
current tightening cycle. The 10-year U.S. yield was around
3.75%, while the five-year OIS was at 6.21%.
    The Fed policy decision is due on July 26, and the odds of a
25-bps hike stay around 96%, but that of another increase after
that has sharply receded.  FEDWATCH 
    Indian government bonds are likely to rally in the coming
weeks, pulling the benchmark 10-year yield below 7% if the Fed
signals an end to its current tightening cycle, said Vikas Goel,
managing director and chief executive officer of PNB Gilts.
    "The Fed rate hike next week should be final and maybe
towards the end of 2023, it could start cutting rates. We could
see a retest of 6.95% on the 10-year benchmark. If the Fed dials
down the metric of how hawkish it is, we can see a
10-basis-point move," Goel said.
    Meanwhile, traders await fresh supply as New Delhi will
raise 310 billion rupees ($3.78 billion) through a sale of bonds
on Friday, which includes 140 billion rupees of a new 14-year
bond.


KEY INDICATORS:

** Brent crude futures  LOc1  up 0.3% at $79.67 per barrel,
after falling 0.2% in the previous session

** 10-year U.S. Treasury yield  US10YT=RR  at 3.7639%, two-year
yield  US2YT=RR  at 4.7831%

($1 = 82.0200 Indian rupees)

 (Reporting by Dharamraj Dhutia; Editing by Dhanya Ann Thoppil)
 ((Dharamraj.dhutia@tr.com))