Govt bond yields flattish with eyes on inflation data, US Fed guidance

India's 10-year benchmark bond yield was around the 7 per cent handle on Wednesday, with the market eyeing key inflation data from India and the United States and the Federal Reserve's monetary policy decision later in the day.

India's benchmark 10-year yield was at 7.0103 per cent as of 10:30 am IST, following its previous close of 7.0139 per cent.

"There could be some bullish bias, but traders will remain fixated mainly on the US inflation data, followed by Fed policy guidance and the updated dot plot," the trader said.
 

India retail inflation likely snapped a four-month downward trend in May due to rapidly rising food costs, according to a Reuters poll that predicted the reading to have picked up to 4.89 per cent from April's 4.83 per cent.
 

This would be followed by the US print and a Reuters poll estimates the reading for 12 months to May at 3.4 per cent, flat against April.
 

The 10-year US yield eased slightly to 4.40 per cent ahead of the data and Fed decision and while no change in rates is expected, traders would look out for new interest rate forecasts indicated through the dot plot for 2024.
 

Futures are indicating a 48 per cent probability of a rate cut in the September meeting, down from 67 per cent a week earlier. Markets are also pricing in 40 basis points of cuts in 2024 against nearly 50 bps last week, according to the CME FedWatch tool.

Local sentiment strengthened after Prime Minister Narendra Modi's Bharatiya Janata Party retained key portfolios in the new coalition government, including the finance ministry, and as Reuters on Tuesday reported, citing a government official, that the new government has no plans to increase fiscal deficit target.
 

The central bank will auction treasury bills worth Rs 12,000 crore ($1.44 billion) later in the day.