India bond yields seen little changed with Fed meet in focus
By Dharamraj Dhutia
MUMBAI, July 31 (Reuters) -Indian government bond yields are expected to trend sideways in early trading on Wednesday as traders will wait for the Federal Reserve's monetary policy decision and guidance on rate cuts.
The benchmark 10-year yield IN071034G=CC is likely to move in the 6.91%-6.95% range, compared with its previous close of 6.9326%, a trader with a private bank said.
"The Fed's decision and guidance would be the single dominating factor as far as direction for bonds are concerned for now and if Treasury yields see a large decline, we could definitely (see the) benchmark yield testing levels below 6.90%," the trader said.
U.S. Treasury yields drifted lower on Tuesday ahead of the Fed's decision, due after Indian market hours.
The central bank is expected to signal the start of rate cuts from September and any dovish tilt in Chair Jerome Powell's remarks could cement bets of 75 basis points reduction in 2024.
Currently, investors have priced a 25 basis point cut in September, and an aggregate of 68 bps of cuts in 2024, according to the CME FedWatch tool. FEDWATCH
The benchmark Brent crude stayed below $80 per barrel. That is a positive for India, which is one of the largest importers of crude oil, making any sustained fall in prices a boon for the nation's inflation outlook.
Meanwhile, foreign investors see India's decision to return to curbs on purchases of some government securities as a flip-flop in policy that may force them to redraw investment strategies, global fund managers said on Tuesday.
Still, demand from local banks is expected to continue as the Reserve Bank of India's draft guidelines to bolster the liquidity resilience of lenders could require banks to maintain higher holding of government securities.
KEY INDICATORS:
** Brent crude futures LCOc1 were higher by 0.8% at $79.30 per barrel, after falling 1.4% in the previous session
** Ten-year U.S. Treasury yield US10YT=RR at 4.1453%, two-year yield US2YT=RR at 4.3564%
** RBI to auction treasury bills worth 200 billion rupees ($2.39 billion)
($1 = 83.7260 Indian rupees)
Reporting by Dharamraj Dhutia; Editing by Savio D'Souza
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