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Bond yields seen flat with market focus on December inflation readings
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MUMBAI - Indian government bond yields are expected to be largely unchanged on Thursday, as market focus remained on inflation readings from India and the United States that are likely to provide cues on the central banks' rate-hike trajectory.
The benchmark 10-year yield is expected to move in a range of 7.27% to 7.32%, a trader with a private bank said. The yield ended lower at 7.2913% on Wednesday and has fallen eight basis points in the previous three sessions.
Since this would be the last major data point before monetary policies for both India and the United States, it would be keenly eyed, and an unexpected reading is likely to fuel reactions, the trader said.
The U.S. inflation reading is expected to stand at 6.5%, down from 7.1% in November, and comes after weak economic data raised bets of a slowdown in rate hikes from the Federal Reserve.
The Fed raised interest rates by 425 bps in 2022 and is set to hike them further this year. Futures are pricing in the Fed's target rate to be 4.947% in June, but also expect it to drop to 4.458% by December, indicating that the U.S. central bank may have to cut rates.
India's retail inflation for December is likely to remain steady at 5.90%, after easing to 5.88% in November, a Reuters poll of economists showed. The Reserve Bank of India (RBI) aims to maintain inflation within the 2%-6% band.
The RBI raised the repo rate by 225 basis points in 2022 to 6.25% and is set to hike again in February, which could be followed by a prolonged pause.
"With rate hikes of 225 bps during 2022, large part of curve flattening has already happened; yield movement at the longer end has been relatively small," Shobhit Mehrotra, head fixed income at HDFC Asset Management Company said in a note.
Investor focus is expected to shift to federal budget due on Feb. 1 with government's fiscal consolidation plan and gross borrowing figures for the next financial year driving the markets.
KEY INDICATORS:
** Brent crude futures up 0.2% at $82.85 per barrel, after rising 3.2% in the previous session. ** 10-year U.S. Treasury yield was at 3.5373% and the two-year note at 4.2200%.
