Indian bond yields may dip; no clarity over Fed rate hike to limit fall

Indian government bond yields are expected to ease on Monday, tracking a plunge in US Treasury yields, but the fall may be capped as latest data did not clearly hint a larger interest rate cut from Federal Reserve next week.

The benchmark 10-year yield is likely to move between 6.83% and 6.87% range, compared with its previous close of 6.8542%, a trader with a private bank said.
 

"There could be some easing, but the clarity that market needed has still not come and hence major and sustainable break below 6.85% may be unlikely til the US inflation data for now," the trader said.
 

US Treasury yields fell on Friday, with the 10-year yield briefly touching a 15-month low, but reversed most of the declines, after August jobs data failed to offer a clear signal on the size of an expected rate cut next week.
 

Nonfarm payrolls increased by 142,000 jobs last month after a downwardly revised 89,000 rise in July. Economists polled by Reuters had forecast payrolls increasing by 160,000 jobs. The unemployment rate fell to 4.2%, from 4.3% the prior month.

Labor market data provided mixed evidence of cooling, with the unemployment rate ticking down and payroll employment seemingly on a softer trajectory, Barclays said in a note.
 

"FOMC communications point to a 25 bps cut in September, and that the subsequent pace will depend on the totality of the data," the foreign brokerage added.
 

Markets have fully priced in a rate cut of at least 25 bps at the Fed's policy decision due on Sept. 18, with expectations for a 50 bps remaining around 30%.
 

The focus would shift to inflation print in the world's largest economy due in the middle of the week, to provide any push towards a 50 bps move.

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