The 10-year benchmark 7.26% 2033 bond yield is expected to be in the 6.96% to 7.02% range after closing at 7.0057% in the previous session, a trader with a private bank said. This is what can be safely called a dovish pause, and hence markets are now expecting the start of a rate-cut cycle in the U.S. in the next quarter, the trader said.
"The opening tick for the 10-year point should be below 7% today."
U.S. Treasury prices jumped, with yields crashing further after the Federal Reserve raised interest rates by 25 basis points (bps) to the 5.00%-5.25% range, but signaled a pause in its tightening cycle at the next few meetings. Fed Chair Jerome Powell said it was now an open question whether further increases will be warranted in an economy still facing high inflation, but also showing signs of a slowdown and with risks of a tough credit crackdown by banks on the horizon. "We are closer, or maybe even there," Powell said of the end-point of rate increases. The U.S. rate futures market is now pricing in a pause at the June and July meetings, and a rate cut by September. By end-2023, the market expects cuts between 50 bps to 75 bps. Capital Economics expects the Fed's next move to be an interest rate cut later this year, "with rates eventually falling back more sharply than the markets are anticipating." Local bond yields have been plummeting since the last few days on bets of policy pivot from the Fed. The fall in yields may, however, be controlled as the Indian government aims to raise 330 billion rupees ($4.04 billion) later in the day. The auction includes 140 billion rupees of the benchmark 2033 paper. KEY INDICATORS: ** Brent crude futures contract was 0.7% higher at $72.88 per barrel after declining 4% in previous session ** 10-year U.S. Treasury yield was at 3.3337% and two-year note at 3.8048% ** India to sell sovereign bonds worth 330 billion rupees ** RBI to set underwriting fees for 330 billion rupees sovereign bond auction ** RBI to conduct 15-day variable rate reverse repo auction for 500 billion rupees ($1 = 81.6740 Indian rupees) (Reporting by Dharamraj Dhutia Editing by Sonia Cheema)
