India bond yields end slightly lower ahead of US inflation report
By Bhakti Tambe
MUMBAI, Aug 14 (Reuters) -Indian government bond yields ended slightly lower on Wednesday as market participants awaited a key U.S. inflation report due later in the day, for clues into the Federal Reserve's rate trajectory.
The benchmark 10-year yield IN071034G=CC ended at 6.8580%, compared to its previous close of 6.8786%. Indian financial markets will be closed on Thursday for Independence Day.
Slowing inflation and a cooling labour market have led market participants to increasingly anticipate that the U.S. central bank will start its easing cycle in September, which was reinforced by Tuesday's producer price index data.
U.S. producer prices increased less than expected in July as a rebound in the price of goods was tempered by a fall in the cost of services.
The 10-year yield US10YT=RR was lower at around 3.83% in Asian hours, while the 2-year yield US2YT=RR was at 3.93%.
Futures indicate an about 54% chance that the Fed will cut 50 basis points in September against 46% chance of a 25 bps cut, with a full 100 bps of easing expected by the year-end.
"The possibility of (global) monetary policy easing, favourable demand-supply dynamics, and steady foreign inflows after the JP Morgan EM- Bond index inclusion place Indian Bonds in a sweet spot," said Puneet Pal, fixed income head at PGIM India Mutual Fund.
"Bond yields tend to react ahead of expected monetary action and we continue to be constructive on long duration bonds."
Last week, the Reserve Bank of India kept its key interest rate unchanged, retaining focus on bringing inflation down, even as global market volatility left other major central banks poised to ease policy.
Traders are also awaiting Friday's weekly auction. New Delhi aims to raise 340 billion rupees ($4.05 billion) via bond sale, which includes 14-year and 50-year notes.
($1 = 83.9190 Indian rupees)
Reporting by Bhakti Tambe; Editing by Varun H K
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