Indian Bond Yields Expected to Trend Lower Following Fed Decision
Indian government bond yields are expected to trend marginally lower on Thursday, mirroring similar moves in US Treasury yields. This follows the Federal Reserve's decision to maintain its stance on potential future rate cuts, despite acknowledging recent elevated inflation readings.
The benchmark 10-year yield is likely to move within a range of 7.16% to 7.21%, following its previous close of 7.1855%. This is attributed to the Fed's less hawkish tone than anticipated by many market participants, effectively ruling out further rate hikes in the near future.
US yields eased on Wednesday after the Fed's decision, with the 10-year yield hovering around the crucial 4.60% mark and the two-year yield, a closer indicator of interest rate expectations, settling around 4.95%.
Despite acknowledging the recent surge in inflation, Fed Chair Jerome Powell indicated that policymakers anticipate a longer-than-expected timeframe for inflation to resume its decline towards the 2% target.
Investors continue to price in the possibility of around 35 basis points of rate cuts in 2024, unchanged from before the Fed's decision. This is significantly lower than the over 150 basis points anticipated at the start of 2024.
The sentiment was further supported by a decline in oil prices, with Brent crude futures dropping below $85 per barrel. This was attributed to a surprise increase in US crude stocks and the prospect of a Middle East ceasefire agreement that could smoothen supply. Oil prices have a direct impact on India's retail inflation due to the country's status as a major importer.