Government bond yields track US peers higher

Government bond yields ended higher on Friday, tracking US peers, after strong economic data curtailed expectations of an aggressive Federal Reserve rate cut next month.

The benchmark 10-year yield IN071034G=CC ended at 6.8700 per cent , compared with its previous close of 6.8580 per cent . The yield ended 1 basis points (bps) lower this week.

"The Fed is expected to clarify its position by mid-September, and by then, we will also have additional inflation data for India," said Abhishek Bisen, fixed income head at Kotak Mahindra Mutual Fund.

US bond yields rose on Thursday after strong economic data eliminated fears about a hard landing and a benign inflation reading made a 50-bps cut look less likely in September.

The US consumer price index increased 0.2 per cent  in July, in line with a Reuters poll, after falling 0.1 per cent  in June.

Also, 227,000 Americans filed for unemployment benefits last week, fewer than the 235,000 expected and the upwardly revised 233,000 claims the prior week.

The data restored confidence that was jolted by a surprisingly weak employment report a couple of weeks ago.

Fed funds futures indicate 75 per cent  traders see the odds of a 25 bps cut in September policy, while the odds of a 50 bps cut fell to 24 per cent  from more than 50 per cent  earlier this week. FEDWATCH

Earlier this month, the Reserve Bank of India (RBI) kept its key interest rate unchanged, maintaining its focus on bringing down inflation.

"The RBI might either adjust its stance or opt for a rate cut in October or December. If the situation remains stable, the likelihood of a rate cut in December is higher," Kotak Mahindra Mutual Fund's Bisen said.

New Delhi raised 340 billion rupees ($4.05 billion) via a weekly auction earlier in the day and the cutoffs were in line with expectations.

Market participants will watch out for minutes from the Fed and RBI's latest meetings, due next week, for further cues.