Bond yields flattish; inflation data cements delayed policy easing view

Indian government bond yields ended largely unchanged on Tuesday, even as a larger-than-expected spike in local inflation data diminished expectations of an early interest rate cut by the country's central bank.

  The benchmark 10-year bond yield ended at 6.7958%, compared with the previous close of 6.7874%.

  "October's (inflation) reading has firmed up the market's view that a rate cut in December is completely off the table," said Ritesh Bhusari, joint general manager for treasury at South Indian Bank.

  "Our upside bias for yields remains, although we think that we can see good buying interest from state-run banks and foreign participants once the (benchmark) yield is closer to 6.90%." India's consumer inflation accelerated to 6.21% year-on-year in October, breaching the Reserve Bank of India's target range for the first time in over a year, as food prices rose.

 

  The print was sharply higher than the estimate of 5.81% in a Reuters poll of 45 economists.

  The rise in October's inflation, alongside recent hawkish comments from the RBI Governor Shaktikanta Das, has reduced the probability of a rate cut at the Monetary Policy Committee's next meeting in December.

  A few economists were expecting the MPC to cut rates in December amid concerns of slowing growth.

  However, given lingering inflationary pressures and the rising global uncertainty after the U.S. election results, a February rate cut by the RBI "is not a done deal" either, said Sakshi Gupta, economist at HDFC Bank.

  Investors will now focus on the U.S. retail inflation data, due after Indian market hours on Wednesday, and remarks from Federal  Reserve policymakers through the week.

  Analysts expect Donald Trump's administration to increase government borrowing due to higher fiscal deficits, lower taxes and higher tariffs. 

The benchmark U.S. 10-year yield was up 5 bps to 4.36%.