India bond yields seen lower in early trading as US peers nosedive

Indian government bond yields are expected to trend lower in early trading on Monday, tracking a sharp fall in U.S. Treasury yields, after weak jobs data supported bets of aggressive interest rate cuts by the Federal Reserve this year.

The benchmark 10-year yield is likely to move in the 6.85%-6.90% range, compared with its previous close of 6.8945%, a trader with a state-owned bank said.
 

"The 10-year yield will fall tracking US peers but may see strong support at 6.85%. Any sharp decline in local bond yields is unlikely to sustain unless there's an indication from the Reserve Bank of India (RBI) on rate cuts," the banker added.
 

US Treasury yields nosedived on Friday after data showed the world's largest economy created fewer jobs than expected in July and the unemployment rate rose, boosting bets of aggressive rate cuts by the Fed.
 

Meanwhile, oil prices were near eight-month lows as fears of a recession in the US outweighed concerns that escalating tensions in the Middle East could likely affect supplies.
 

The US rate futures market is now pricing in a 75% chance of a 50 basis point cut at the September meeting and about 115 bps of easing this year.
 

Back home, the RBI is expected to keep rates steady for a ninth straight meeting this week due to persistently high inflation, with a slim majority of economists in a Reuters poll expecting the first cut next quarter.
 

"We expect the RBI MPC to keep the policy repo rate unchanged at the Aug 8 meeting at 6.50%... sound relatively optimistic on growth, and continue to reiterate the commitment to the 4% headline inflation target," economists at Goldman Sachs said in a note.

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