99% of investors expect US Federal Reserve to keep rates unchanged

The domestic bond market participants look forward to the outcome of the US Federal Reserve's meeting on Wednesday for positive cues. The government bond market remains volatile amid speculation about India's inclusion into bond indices and tight liquidity.

According to the CME Fed Watch tool, 99 per cent of investors expect the US Federal Reserve to keep the rates unchanged at 5.25–5.50 per cent in their next meeting. On the domestic front, the Reserve Bank of India's monetary policy committee is expected to keep the repo rate unchanged for at least a year from now, dealers said. The repo rate currently stands at 6.50 per cent.

Market participants said that rumours of bond inclusion were speculative in nature, aligning with previous reports that had consistently failed to deliver positive actions from index providers, thus disappointing the market.

"Last week, the market turned positive due to a slight easing of the Consumer Price Index (CPI) inflation figures. However, the 10-year government bond closed lower again with concerns of US treasury yield volatility, increasing Brent crude oil prices, weakening of the rupee, and El Niño monsoon impacts. Investors will now look forward to any positive cues from the Fed statement and Reserve Bank of India monetary policy," Venkatakrishnan Srinivasan, bond market veteran, founder and managing partner of Rockfort Fincap LLP, said.

The yield on the benchmark 10-year government bond traded between 7.12 per cent and 7.25 per cent in the previous week. The benchmark yield fell below the psychologically crucial 7.15 per cent mark during the week due to optimism regarding including bonds in international indices. However, the rise in US Treasury yields and crude oil prices dampened the sentiment.

The benchmark yield settled at 7.19 per cent on Monday.

The yield on the 10-year US Treasury note rose to 4.35 per cent by the end of the Indian market hours on Monday, against 4.32 per cent on Friday.