Sovereign bond yields rise tracking US peers amid cautious sentiment

Indian government bond yields closed higher on the first day of the holiday-truncated week, with the benchmark yield ending at its highest level in two months as U.S. Treasury yields continued to move upwards.

 

The benchmark 10-year yield ended at 6.8660%, the highest since Sept. 3, compared with its previous close of 6.8495%. 

U.S. yields were higher in Asian hours following an uptick on Friday as investors awaited fresh data for clues on the Federal Reserve's interest rate path as well as the presidential election in the U.S. due next Tuesday. 

Betting markets showed greater odds that Republican Donald Trump will win the U.S. presidency on Nov. 5, along with a Republican majority in the Senate and House of Representatives. 

"Trump presidency itself will mean higher deficits and higher inflation. In that context, U.S. rate cut expectations will have to be reassessed. That should mean less scope for Indian curve to move downwards," said A Prasanna, head - research at ICICI Securities Primary Dealership told the Reuters Trading India Forum. 

The 10-year U.S. yield broke the key level of 4.25%, and was around highest level in more than three months. 

Interest rate futures continue to indicate a 94% probability that the Federal Reserve will cut rates by 25 basis points next month, with investors pricing in an aggregate of 76 bps of cuts in four meetings to March 2025. 

Meanwhile, oil prices slumped on Monday after Israel's strike on Iran did not disrupt energy supplies, thus easing geopolitical tensions. 

India is one of the largest importers of crude and the price moves have a direct impact on retail inflation. 

The Reserve Bank of India, which aims to maintain inflation at 4%, had said the country cannot risk another bout of inflation and that the monetary policy committee must adopt a cautious approach to cutting rates.