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Indian bond yields rose on Monday, with the 10-year benchmark yield hitting a more than two-month high, tracking rise in U.S. peers as strong economic data further pushed back expectations around the timing of the first rate cut by the Federal Reserve.
The benchmark 10-year yield ended at 7.1501%, the highest level since Jan. 31, following Friday's close of 7.1232%.
Investors now await domestic and U.S. March inflation data, due later this week for further cues.
India's headline retail inflation print is seen at 4.7% on-year in March, the lowest since May 2023, amid easing core inflation, Barclays said.
"The next policy step is likely to be easing, with inflation expected to move towards the target rate in FY25. However, the Reserve Bank of India is unlikely to be in a hurry to cut policy rates with growth showing no adverse impact of current policy rates," IDFC First Bank economist Gaura Sengupta said.
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U.S. yields jumped on Friday after data showed non-farm payrolls grew by 303,000 jobs in March compared with expectations for a 200,000 increase, while the unemployment rate slipped to 3.8% compared with forecasts of 3.9%.
The 10-year yield was over 4.40%, after hitting its highest level in more than four months.
The data has further raised uncertainty over the timing of rate cuts, with the odds of a June action now dropping below 50%, while bets for aggregate cuts of 75 bps in 2024 also eased below the halfway mark, according to the CME FedWatch tool.
"In case the Fed rate cut cycle gets delayed due to adverse U.S. inflation prints, the RBI rate cut cycle could also get delayed," Sengupta said.
Last week, the RBI kept interest rates unchanged for a seventh straight policy meeting as growth is expected to remain robust while inflation stays above the 4% target.
Traders are also monitoring oil prices, with the benchmark Brent crude contract hovering near $90 per barrel. Higher commodity prices could impact retail inflation.
