Govt bond yields dip marginally tracking US peers, RBI policy stays key

Indian government bond yields ended marginally lower on Wednesday, tracking another decline in U.S yields, but the fall remained capped as the major focus stayed on the local central bank's monetary policy decision.
 

The 10-year benchmark bond yield ended at 7.2528%, after closing the previous session at 7.2571%.
 

The Reserve Bank of India (RBI) is expected to hold rates at 6.50% for a fifth consecutive meeting at its monetary policy meeting on Friday, according to a Reuters poll.
 

The decision comes amid a "more favourable external environment" of lower U.S. yields and crude oil prices," said Gaura Sen Gupta, an economist at IDFC First Bank.
 

"While we do not expect the RBI to change its inflation forecast, it is likely to strike a cautious tone on preventing second-round effects."
 

Traders expect the policy guidance to have a hawkish undertone, with the nation's overnight index swap market signalling that the RBI will not rush to cut interest rates even if the U.S. Federal Reserve begins rate cuts early next year.
 

The focus will remain on keeping liquidity conditions tight to enhance the transmission of past rate hikes and prevent the generalisation of price pressures, Sen Gupta added.
 

Meanwhile, U.S. yields tumbled on Tuesday on concerns about slowing U.S. economic growth after a report showed job openings hit the lowest level in more than 30 months in October, reaffirming expectations of a policy pivot by the Federal Reserve in the first half of 2024.
 

The Job Openings and Labor Turnover Survey, or JOLTS report, along with a softer inflation reading, has boosted hopes that the Fed's policy tightening cycle is done. The odds of a rate cut in March is now close to 63%, with the odds for aggregate rate cuts of 125 bps in 2024 also above 50%.
 

The 10-year U.S. yield dropped to 4.16% for the first time in over three months, and remained below 4.20%.