India bond yields may dip tracking US peers, RBI policy key Indian government bond yields are expected to trend lower in early session on Wednesday, tracking U.S. peers, even as market participants await the Reserve Bank of India‘s monetary policy decision. The 10-year benchmark 7.26% 2032 bond yield is expected to be in the 7.28-7.33% range on Wednesday after closing at 7.3142% on Monday. India’s financial markets were shut on Tuesday. There could be some initial slide in yields at the open, in step with the U.S. Treasuries, but any major fall may be unlikely, the trader said. “The policy decision as well as the guidance is the key driver, along with start of the auction cycle,” the trader added. U.S. yields dropped on Tuesday after job openings in February dropped to the lowest level in nearly two years, implying that the labour market is finally cooling and could allow the Federal Reserve to loosen its grip on monetary policy. Focus remains on the RBI’s monetary policy decision due on Thursday, when the central bank is expected to raise the interest rate by 25 basis points. The central bank had raised the repo rate by 250 bps to 6.50% in the previous financial year. The benchmark bond yield is expected to trade in the 7.25-7.50% range for the next three months, and even if the RBI hikes the rate, the market might not react negatively as that move is already priced in. Market will react on the guidance, said Marzban Irani, chief investment officer for fixed income at LIC Mutual Fund. “We were expecting strong rate hikes, but of late, the views have changed, and final rate hikes are being delivered, and with a fall in U.S. yields, Indian bond yield should also ease. “Traders will also be keenly tracking the movement in oil prices, especially after the OPEC+ announced additional production cut.
Last Friday, WTI and Brent slid 3% after strong U.S. jobs data raised concerns that the Federal Reserve would keep raising interest rates, which in turn boosted the dollar. While recession fears dominated the market last week, on Sunday International Energy Agency (IEA) Executive Director Fatih Birol highlighted that China’s recovery remains a key driver for oil prices.
“If demand goes up very strongly, if the Chinese economy rebounds, then there will be a need, in my view, for the OPEC+ countries to look at their (output) policies,” Birol told Reuters on the sidelines of a conference in India.Price caps on Russian products took effect on Sunday, with the Group of Seven (G7), the European Union and Australia agreeing on caps of $100 per barrel on diesel and other products that trade at a premium to crude, and $45 per barrel for products that trade at a discount, such as fuel oil.
“For the moment, the market expects non-EU countries will increase imports of refined Russian crude, thus creating little disruption to overall supplies,” ANZ analysts said in a client note. “Nevertheless, OPEC’s continued constraint on supply should keep the market tight,” they said.