India Bonds: Bond yields seen higher tracking U.S. peers

Star Health and Allied Insurance

06/02/2023 03:00

By Dharamraj Dhutia
       MUMBAI, Feb 6 (Reuters) - Indian government bond yields
could edge up in early trading session on Monday, tracking a
spike in U.S. yields as strong economic data in the world's
largest economy allayed recession concerns.
    The rise in yields may be capped by the declining oil
prices, likely easing local inflation concerns.
    The benchmark 10-year yield  IN072632G=CC  could move in the
7.26%-7.31% range, a trader with a private bank said.  The yield
dropped 11 basis points (bps) last week, its biggest move since
the week ended Nov. 11.
    There should be some increase in opening trading, as the
U.S. 10-year yield is back above the crucial 3.50% levels, the
trader said. 
    U.S. Treasury prices fell as data showed job growth surged
and services activity rebounded in January, likely undermining
the Federal Reserve's attempts to slow the economy to bring
inflation down.
    The 10-year U.S. yield  US10YT=RR  jumped 13 basis points on
Friday and was last at 3.56%, while the two-year  US2YT=RR 
yield, which usually moves in step with interest rate estimates
jumped 21 basis points, settling at 4.34%.
    Non-farm payrolls surged by 517,000 jobs last month, sharply
higher than a Reuters estimate of 185,000. The unemployment rate
fell to 3.4% from December's 3.5%.
    The Institute for Supply Management (ISM) said on Friday its
non-manufacturing PMI increased to 55.2 last month, above an
estimated 50.4 reading, after dropping to 49.2 in December. 
    Meanwhile, oil prices fell as the strong jobs data raised
concerns about higher interest rates, while investors sought
more clarity on the imminent EU embargo on Russian refined
products.
    Traders now await the Reserve Bank of India's monetary
policy decision due on Wednesday, when the central bank is
widely expected to hike the repo rate by 25 bps followed by a
prolonged pause.
    It is unlikely that the central bank will not hike rate
beyond Wednesday's move, said Aneesh Srivastava, chief
investment officer of  Star Health and Allied Insurance.
    "We expect the RBI to hike repo rate by 25 bps next week,
followed by a similar action in April, as core inflation
pressures still exist." 
KEY INDICATORS:
** Brent crude futures  LCOc1  up 0.2% at $80.10 per barrel,
after easing 7.5% in previous week 
** 10-year U.S. Treasury yield  US10YT=RR  at 3.5580% and
two-year note  US2YT=RR  at 4.3448%
 (Reporting by Dharamraj Dhutia; Editing by Dhanya Ann Thoppil)
 ((Dharamraj.dhutia@tr.com))