Govt bond yields seen higher tracking US peers on inflation uptick

Indian government bond yields are expected to move up in the early session on Wednesday, tracking a similar move in Treasuries, after inflation in the world's largest economy came in marginally above estimates, and unaffected by local reading.
 

The benchmark 10-year yield is expected to drift in the 7.03 per cent-7.07 per cent range, following its previous close of 7.0274 per cent, a trader with a private bank said.
 

"There could be some uptick in yields as the data has not boosted any confidence about May rate cuts and even June action would now be dependent on the commentary from the Federal Reserve next week," the trader said.
 

 

US yields rose on Tuesday, with the 10-year yield rising to 4.15 per cent, after consumer price inflation for February came in slightly above economists' expectations, raising concerns that the Fed may not be able to cut interest rates as soon as investors expect if price pressures remain elevated.
 

The consumer price index rose 0.4 per cent last month after climbing 0.3 per cent in January and for the 12 months through February, the CPI increased 3.2 per cent, after advancing 3.1 per cent in January. Economists polled by Reuters had forecast the CPI gaining 0.4 per cent on-month and 3.1 per cent on-year.
 

"There is just enough evidence of sticky inflation for some Fed members to potentially take one rate cut off the table for 2024, with all eyes now on the Fed's meeting next week, and specifically the updated dot plot," said Madhavi Arora, lead economist at brokerage Emkay Global.
 

The odds for a rate cut in June stand at around 70 per cent, marginally down from the previous day, according to the CME FedWatch tool.
 

Meanwhile, India's retail inflation in February rose at a marginally faster-than-expected pace due to elevated food prices, with the reading at 5.09 per cent from 5.10 per cent in January, and higher than the 5.02 per cent forecast in a Reuters poll.
 

Despite retail inflation being within the mandated band of 2 per cent-6 per cent, the central bank has signalled it would not lower interest rates until it achieves the 4 per cent inflation on a sustainable basis.
 

Key indicators:

• Brent crude futures 0.5 per cent higher at $82.40 per barrel, after easing 0.4 per cent in previous session
• Ten-year US Treasury yield at 4.1468 per cent, two-year yield at 4.5683 per cent
• RBI to auction Treasury bills worth Rs 34,000 crore ($4.11 billion)

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