By Dharamraj Dhutia
MUMBAI, March 9 (Reuters) - Indian government bond yields
ended largely unchanged in a thin volume trading session on
Thursday, as market participants await crucial U.S. data after
the recent spike in Treasury yields.
The 10-year benchmark 7.26% 2032 bond yield ended at 7.4449%, after closing higher at 7.4547% on Wednesday.
"Any major movement may be witnessed only in the next week,
which would see reactions on multiple (economic) data points," a
trader with a primary dealership said.
These data points include the U.S. non-farm payroll data on
Friday as well as U.S. and India inflation data next Tuesday.
U.S. Treasury yields have been elevated after data showed
the labour market remained tight and Federal Reserve Chair
Jerome Powell set the stage for higher and faster interest rate
hikes.
The inversion between the two-year yield, a closer indicator
of rate expectations, and the 10-year yield stayed above 100
basis points (bps).
After Powell's comments on Tuesday, Fed funds futures have
priced in a more-than-68% chance of a 50 bps rate hike,
potentially as soon as the next policy announcement on March 22.
The Fed has raised rates by 450 bps over the last year and
the market has fully factored in an additional 100 bps increase
over the coming months. The Fed's continued hikes could force the Reserve Bank of
India, which has raised rates by 250 bps this financial year, to
follow suit.
But the uncertainty over rate hikes, along with bets of
tightening liquidity deficit led to the 364-day treasury bill
yield rising above the 10-year yield on Wednesday.
"The inversion happened due to higher-than-expected cutoffs
on treasury bills sales, which in turn, was triggered by deficit
in the liquidity in the banking system," said VK Vijayakumar,
chief investment strategist at Geojit Financial Services.
"This declining trend in liquidity and inversion of the
yield curve is likely to continue for some more time."
(Reporting by Dharamraj Dhutia; Editing by Savio D'Souza)
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