Govt bond yields expected to rise tracking US peers, debt sale in focus

Indian government bond yields are expected to rise in opening trades on Friday, tracking US peers, after strong economic data scaled back expectations of an aggressive interest rate cut by the Federal Reserve.

The benchmark 10-year yield is likely to move between 6.85 per cent and 6.89 per cent, compared to its previous close of 6.8580 per cent, a trader with a state-run bank said. Indian financial markets were closed on Thursday for a public holiday.
 

US yields rose on Thursday after strong economic data eliminated fears about a hard landing and a benign inflation reading made a more aggressive 50-basis-point cut look less likely.
 

The US Commerce Department said retail sales rose 1.0 per cent last month, more than expected, after a downwardly revised 0.2 per cent drop in June. Separately, the US consumer price index increased 0.2 per cent in July, in line with a Reuters poll, after falling 0.1 per cent in June.
 

"In both inflation and labour data, there are signs of normalization rather than any recessionary impulses. Fed's policy response can therefore be in the context of normalization," said Anitha Rangan, an economist at Equirus Group.
 

"Even if Fed cuts in September, it would not be followed with a series of cuts. Patience will dominate the pace of cuts." Fed funds futures indicate 75 per cent traders see the odds of a 25 bps cut in September policy, while the odds of 50 bps cut fell to 24 per cent from more than 50 per cent earlier this week.
 

Meanwhile, oil prices rose on Thursday after US economic data allayed fears of an imminent recession in the world's biggest economy.

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