10-year bond's yield falls during early trade, following US bonds decline

Indian government bond yields were trading lower in the early session on Wednesday as U.S. yields continued their slide decline after weak economic data increased bets that the Federal Reserve's higher policy rates may not sustain for much longer.

The benchmark 7.26% 2033 bond yield was trading at 7.1611% as of 10:15 a.m. IST, after ending the previous session at 7.1880%, a trader with a private bank said.

"Bond yields are reacting to the continuous downward shift in U.S. rates as that is the sole factor that has been driving Indian debt markets for quite some time now," a trader with a private bank said.
 

U.S. yields dropped to three-week lows on Tuesday after data showed job openings in July fell more than expected, to their lowest level since March 2021, with the labour market gradually slowing.
 

The Labor Department report also showed the number of people quitting their jobs dropped to levels last seen in early 2021, indicating that Americans were becoming less confident in the labour market.
 

The 10-year yield inched towards 4.10%, more than 25 basis points (bps) lower than the 16-year high levels touched last week. The odds of a rate hike in September have eased further.
 

In India, traders will keep an eye on the domestic inflation trajectory, especially after the government's move to cut cooking gas prices.
 

India's retail inflation spiked to a 15-month high of 7.44% in July from 4.87% in June, and will remain above the Reserve Bank of India's upper tolerance band until October at least, according to a Reuters poll of economists.
 

Citi, however, feels that the September print may ease below 6%, with the cut in cooking gas price having an impact of 30 bps.

"This, along with tomato price reversal, raises the possibility of a below-6% print," Citi Research said.