Indian government bond yields fell in early session on Thursday, mirroring their U.S. counterparts, after the Federal Reserve raised interest rates by an expected 25 basis points, but signalled it was nearing a pause in further increases.
The 10-year benchmark 7.26% 2032 bond yield was at 7.3256% as of 10:00 a.m. IST, after ending at 7.3495% on Tuesday. The yield dipped to 7.3137% earlier in the day, its lowest level since February 8.
Local debt markets were shut on Wednesday for a public holiday.
"With the Fed hiking cycle coming to an end, we would see central banks across the globe, including India, following this move," a trader with a state-run bank said.
"Still, benchmark yield may not break 7.30% on the lower end till the local central bank's policy decision."
U.S. yields dropped on Wednesday after the Fed's decision on a small rate hike, and policymakers said they believed beating back inflation may require only one more rate hike this year. The two-year U.S. yield collapsed 20 bps on Wednesday and another 10 bps on Thursday to trade at 3.88%, while the 10-year yield is down by 16 bps since Tuesday's close to trade at 3.45%. U.S. central bankers see the policy rate, now in the 4.75%-5.00% range after, at 5.1% by the end of the year, according to the median estimate in the Fed's latest quarterly summary of economic projections. Chair Jerome Powell said while the banking system stress has added uncertainty to the outlook, it is still possible the economy may not face a sharp downturn. The odds of the Fed hiking rates by 25 bps in May now stand at 37%, with 63% expecting it to maintain status quo. Domestic focus will now shift to the RBI's policy decision on April 6, with bets that the central bank may opt for another rate hike after having raised rates by 250 bps in this financial year. (Reporting by Dharamraj Dhutia; Editing by Nivedita Bhattacharjee)
