India 10-yr bond yield drops most in 2 months as Treasury yields plunge

The Indian benchmark bond yield posted its biggest single-session drop in two months on Wednesday, following a plunge in U.S. Treasury yields on growing bets that the Federal Reserve may start cutting rates in the first half of 2024.

The 10-year benchmark bond yield ended at 7.2204%, its lowest since Oct. 5, after closing at 7.2828% on Monday. The market was shut on Tuesday for a local holiday.

The six basis points (bps) drop was the biggest single-session fall since Sept. 14.


"Indian bond yields have fallen, tracking a sharp downmove in the U.S. Treasury yields, but there should be some consolidation at around 7.20%-7.25 levels," said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank.

The ambiguity over when the Reserve Bank of India would start implementing its plan to sell bonds via auctions, to manage liquidity in the banking system, added to the nerves.

"Uncertainty regarding the open market sale of bonds ... continues to persist and may not allow any large rally, till clarity emerges on the same," said Tripathi.

U.S. yields slumped on Tuesday - with the 10-year sliding nearly 20 bps to 4.43%, its lowest since Sept. 22 - after softer-than-expected consumer inflation led to bets that the Fed would start cutting rates next year.

The probability of a rate cut in March is now at 31% and of one in May is at 65%.

Traders also said the trading range for the Indian benchmark bond yield has also shifted lower to the 7.20%-7.26% band as U.S. yields tumbled.

That comes with expectations of a long pause on domestic rates, which was firmed after data showed India's retail inflation eased to 4.87% in October from 5.02% in September and edged closer to the central bank's target of 4%.