Indian Bond yields hold steady ahead of Fed meeting

Indian bond yields: Bond yields saw minimal movement on Monday as market attention turned to the upcoming Federal Reserve monetary policy decision. The benchmark 10-year yield closed marginally higher at 7.1971 per cent, compared to the previous day's 7.1870 per cent.

The Federal Reserve is anticipated to maintain its benchmark interest rate within the range of 5.25 per cent to 5.50 per cent following its two-day policy meeting concluding on Wednesday.

Debendra Kumar Dash, Senior Vice President of Treasury at AU Small Finance Bank, noted, "There are no surprises expected from the Fed policy meeting, but the market will closely watch policymakers' commentaries for an outlook on rate cuts."

Initially forecasted for March, expectations for the first rate cut have been postponed to June and now September as labour market strength and inflation persistently surpass projections.

According to CME's FedWatch Tool, investors are currently factoring in the likelihood of approximately 35 basis points (bps) of rate cuts this year, a notable decrease from over 150 bps forecasted at the beginning of 2024.

Dash added, "Indian bond yields will continue to remain insulated from global volatility as local fundamentals are strong. The 10-year benchmark bond yield is unlikely to cross 7.25 per cent even if US peers surge sharply."

In other market developments, US yields experienced a slight decline on Friday following data indicating that a key inflation gauge aligned closely with expectations. Additionally, seven Indian states aim to raise $1.76 billion through bond sales on Tuesday.

Amid peace talks between Israel and Hamas in Cairo, oil prices remained stable on Monday, while inflation data tempered expectations for immediate interest rate cuts.

(with Reuters inputs)