Indian bond yields to track US peers lower, state poll outcome to aid sentiment

MUMBAI: Indian government bond yields are likely to dip in early trade at the start of the week, mirroring a sharp fall in US yields, while favourable outcome in local state elections for the ruling central government is also likely to aid sentiment.

India’s 10-year benchmark bond yield is expected to be between 7.22% and 7.28% on Monday, after ending the previous session at 7.2899%, a trader with a state-run bank said. “All the factors are now supporting the bulls as far as local bonds are concerned,” the trader said.

“The drop in Treasury yields and oil prices will be a sentiment kicker, while the state election results point at policy continuity, which is also favourable.”

US yields plunged on Friday after comments from US Federal Reserve Chair Jerome Powell fanned optimism that the central bank was done hiking rates, while weak manufacturing sector data also reaffirmed bets of a policy pivot soon.

“We are getting what we wanted to get” out of the economy, Powell said during an event, noting that the “full effects” of the Fed’s 525 basis-point hikes have likely not yet been felt. “Having come so far so quickly, the Federal Open Market Committee is moving forward carefully, as the risks of under- and over-tightening are becoming more balanced,” he said.

The US 10-year yield eased below the 4.20% mark for the first time in three months on Friday and was last trading around 4.25% handle. The probability of a rate cut in March is over 66%, and that in May is over 99%.

Back home, India’s ruling nationalist Bharatiya Janata Party (BJP) won regional votes in three out of four major states, in a big boost for Prime Minister Narendra Modi ahead of a national election due by May.

If the view of BJP crossing the majority mark on its own in 2024 becomes more certain after these state election results, then the investors are likely to ascribe a higher value to political continuity and policy stability, Citi Research said in a note.