off-the-wire

INDIA BONDS-Bond yields seen higher tracking U.S. peers

Kitco Media
By Reuters
Published:
Updated:
Reuters
By Dharamraj Dhutia MUMBAI, Feb 6 (Reuters) - Indian government bond yields could edge up in early trading session on Monday, tracking a spike in U.S. yields as strong economic data in the world's largest economy allayed recession concerns. The rise in yields may be capped by the declining oil prices, likely easing local inflation concerns. The benchmark 10-year yield could move in the 7.26%-7.31% range, a trader with a private bank said. The yield dropped 11 basis points (bps) last week, its biggest move since the week ended Nov. 11. There should be some increase in opening trading, as the U.S. 10-year yield is back above the crucial 3.50% levels, the trader said.


U.S. Treasury prices fell as data showed job growth surged and services activity rebounded in January, likely undermining the Federal Reserve's attempts to slow the economy to bring inflation down. The 10-year U.S. yield jumped 13 basis points on Friday and was last at 3.56%, while the two-year yield, which usually moves in step with interest rate estimates jumped 21 basis points, settling at 4.34%. Non-farm payrolls surged by 517,000 jobs last month, sharply higher than a Reuters estimate of 185,000. The unemployment rate fell to 3.4% from December's 3.5%. The Institute for Supply Management (ISM) said on Friday its non-manufacturing PMI increased to 55.2 last month, above an estimated 50.4 reading, after dropping to 49.2 in December.


Meanwhile, oil prices fell as the strong jobs data raised concerns about higher interest rates, while investors sought more clarity on the imminent EU embargo on Russian refined products. Traders now await the Reserve Bank of India's monetary policy decision due on Wednesday, when the central bank is widely expected to hike the repo rate by 25 bps followed by a prolonged pause. It is unlikely that the central bank will not hike rate beyond Wednesday's move, said Aneesh Srivastava, chief investment officer of Star Health and Allied Insurance. "We expect the RBI to hike repo rate by 25 bps next week, followed by a similar action in April, as core inflation pressures still exist."
KEY INDICATORS: ** Brent crude futures up 0.2% at $80.10 per barrel, after easing 7.5% in previous week

** 10-year U.S. Treasury yield at 3.5580% and two-year note at 4.3448% (Reporting by Dharamraj Dhutia; Editing by Dhanya Ann Thoppil)

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