Bond Yield: Indian government bond yields edged lower on Monday, following their US peers, after Federal Reserve Chairman Jerome Powell signaled that the central bank will likely start cutting interest rates from September.
The yield on the benchmark 10-year note IN071034G=CC closed at 6.8509 percent, compared with its previous close of 6.8591 percent.
“The global backdrop is turning supportive for rate markets, with markets pricing in 100 basis points (bps) of rate cuts by the Fed this calendar year and an additional 125-150 bps of rate cuts in 2025,” said Jalpan Shah, head of fixed income at Trust Mutual Fund.
US bond yields fell after Powell delivered his speech The strongest signal that interest rates would be cut in September, saying a further cooling in the labor market would not be welcome and expressing confidence that inflation is within reach of the Fed’s 2 percent target.
While a 25 basis point cut in September is certain, the odds of a 50 basis point move have risen to about 40 percent, according to the CME FedWatch tool.
“The time has come to tighten monetary policy,” Powell said in Jackson Hole, Wyoming. “The direction ahead is clear, and the timing and pace of rate cuts will depend on emerging data, the evolving outlook and the balance of risks.”
The next set of US nonfarm payrolls and unemployment data will be closely watched to assess the extent of the Federal Reserve’s rate cuts.
In India, inflation is likely to moderate on the back of a good monsoon that will help cool down perishable components of the food basket, paving the way for a possible rate cut from the January-March quarter, said Shah of Trust Mutual Fund.
Last week, the Reserve Bank of India reiterated that rising food prices have prevented headline inflation from reaching the central bank’s 4 percent target, which requires a standstill on rates.
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