Sovereign bond yields edge higher ahead of local, US inflation data

Indian government bond yields ended slightly higher after a range-bound trading session on Monday, with investors awaiting domestic and U.S. inflation data for clues on the outlook for interest rates.

 

The benchmark 10-year yield ended at 6.7874%, compared with Friday's closing level of 6.7762%. The yield traded in a one-basis point range on Monday. 

Data due on Tuesday is expected to show that India's retail inflation climbed to a 14-month high of 5.81% in October, primarily due to higher vegetable and edible oil prices. 

Reserve Bank of India Governor Shaktikanta Das said last week that October's inflation print is going to be "very high." He also said that a change in policy stance does not mean there will be a rate cut in December. 

"Some upward pressure on local bond yields is likely going forward, as a December rate cut in India looks uncertain amid expectations of a higher inflation print in October," Yogesh Kalinge, associate director at A.K. Capital Services, said. 

"We think that the 10-year bond yield can rise up to 6.85% in the near-term, with the pace of rise determined by the U.S.

inflation number." 

The U.S. will report October inflation data on Wednesday. 

Economists expect the U.S. core consumer price index to rise 0.3% month-on-month, matching September's pace. 

Donald Trump's win in the U.S. presidential election has muddled the outlook for interest rates in the world's largest economy.

Trump's victory has fuelled expectations of a larger fiscal deficit and higher inflation down the road, which would limit the cuts the Federal Reserve will deliver.