Bond yields dip as US peers continue to fall
Indian government bond yields were lower on Friday, tracking the continued drop in US yields as weaker economic data raised speculations of a policy pivot by the US Federal Reserve.
The benchmark Indian 10-year government bond yield was at 7.4022% as of 0445 GMT. The yield ended at 7.4117% on Thursday and has fallen 10 basis points in last two sessions.
"Bonds are reacting to US yields. But we may not see any major buying solely based on this factor as the selloff was also very controlled when the yield crossed 4.30%," a trader with a state-run bank said.
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US Treasuries continued to see buying interest after data showed US consumer and business spending slowed in the third quarter, pointing to a possible peak in inflation that could allow the Fed to ease its aggressive rate hikes. The 10-year yield US10YT=RR was at 3.91%.
Fed funds futures are pricing in an 87% probability of a 75-basis points rate hike on 2 Nov, and a 31% chance of the same-sized increase in December, according to CME Group's FedWatch tool. Last week, the probabilities were near 100% and 65%, respectively.
Traders will also remain focused on the Reserve Bank of India's monetary policy committee's recently scheduled meeting on 3 NoV, a day after the Fed's policy decision.
The meeting is to discuss the RBI's response to the government to explain its failure to stick to its inflation target of 4%-6% for three quarters in a row, a source familiar with the matter said. Inflation hit 7.41% in September, topping the target for the ninth straight month.
DBS Bank said a significant part of the blame will be put on exogenous supply-side pressures, including geopolitics that triggered a sharp rally in commodity prices such as oil, inclement weather, supply chain disruptions and the pandemic.
