MUMBAI (Reuters) – Indian government bond yields are expected to open lower on Monday, tracking a fall in U.S. peers last week after weak economic data in the world’s largest economy.
The benchmark 10-year yield is likely to move in a 7.33%-7.37% range, a trader with a private bank said. The yield ended at 7.3736% on Friday, its highest level since Nov. 9.
The yield also posted its biggest single-day gain since Nov. 3, ending four basis points (bps) higher for the week.
Local bond yields had risen on Friday due to caution ahead of jobs data, but with U.S. yields falling, there should be some retracement from Friday’s highs, the trader said.
U.S. yields tumbled as data showed wages rose less than expected last month, even though new jobs increased more than anticipated, while the U.S. services sector shrank for the first time in more than 30 months.
The U.S. non-farm payrolls rose 223,000 last month, against economists’ expectations of an increase of 200,000 jobs.
However, the Institute for Supply Management’s (ISM) non-manufacturing index dropped to 49.6 last month from 56.5 in November. It was the first time since May 2020 that the services reading fell below the 50 threshold, which indicates contraction in the sector that accounts for more than two-thirds of U.S. economic activity.
The 10-year U.S. yield fell 15 bps, while the two-year yield slumped 19 bps.
The U.S. data will be followed by December inflation readings due on Thursday, which will further provide clarity on the Fed’s interest rate trajectory.
Locally, traders will also eye India’s December inflation print due this week and the federal budget announcement, due on Feb. 1.
Inflation eased to 5.88% in November, coming in below the central bank’s upper tolerance level of 6% for the first time in 11 months. However, core inflation stayed above 6%.
“After the initial move in yields, traders will again focus on local triggers, with budget being the key,” said Debendra Kumar Dash, senior vice-president – treasury at AU Small Finance Bank.
KEY INDICATORS:
** Brent crude futures up 1% at $79.40 per barrel, after falling nearly 8.5% in the previous week
** 10-year U.S. Treasury yield was at 3.5599% and the two-year note at 4.2578%
(Reporting by Dharamraj Dhutia; Editing by Rashmi Aich)
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