By Dharamraj Dhutia
MUMBAI, May 3 (Reuters) - Indian government bond yields
declined on Wednesday, tracking a sharp fall in U.S. peers, as
traders anticipated a policy pivot from the U.S. Federal Reserve
after delivering a rate hike later in the day.
A sharp fall in oil prices further improved inflation
outlook, cementing bets that the U.S. central bank will maintain
a prolonged pause.
The 10-year benchmark 7.26% 2033 bond yield was at 7.0500% as of 10:15 a.m. IST, after closing at 7.0924% in
the previous session. Earlier in the day, it had fallen to
7.0440%, its lowest since April 26, 2022.
"Global fundamentals are driving the current rally, and
locally also, there are no teething issues which should bother
the market for the time being," a trader with a private bank
said.
U.S. Treasury prices rose, with yields dipping below key
levels on concerns that the banking turmoil is not yet over
after regulators seized First Republic Bank and sold its assets
to JPMorgan Chase & Co, in a deal to resolve the largest U.S.
bank failure since the 2008 financial crisis.
The 10-year yield dropped below the 3.45% handle, while the
two-year yield, which is a closer indicator of interest rate
expectations, declined below the crucial 4% mark.
Bets have strengthened that the Fed will reverse its
interest rate-hiking course sooner than expected, amid a wide
sell-off in regional bank stocks and signs that government funds
will run short by June.
The Fed's policy decision is due later in the day, wherein a
25 basis points rate hike is widely factored in, and the focus
would be on Chair Jerome Powell's comments.
Odds of a rate cut as early as July policy have risen to
around 40%, while majority expect a status quo in the June
policy.
Meanwhile, the benchmark Brent crude futures contract
slumped 5% on Tuesday, on concerns about the U.S. economy. It
was last around $75 per barrel.
Apart from the Fed meet, the focus would remain on the
weekly debt auction through which the central government aims to
raise 330 billion rupees ($4.04 billion) on Thursday, which
includes 140 billion rupees of the benchmark 2033 paper.
($1 = 81.7670 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Varun H K)
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