Rising inflation raised questions about interest rate decreases in the near future, and on Friday, Indian government bond yields surged, with the benchmark yield recording its largest one-day increase in six months. Following a closing at 7.1112 percent the previous day, the yield on the benchmark Indian 10-year bond reached its highest level since January 24 at 7.1794%
Since October 6, when the central bank said that it will employ bond sales on the open market to maintain liquidity, the yield saw its largest increase in a single session.
“The third successive hot inflation print in the US has completely shaken expectations of both the extent and the timing of rate cuts in 2024. We continue to maintain that the Fed will not cut rates this year,” stated Madhavi Arora, lead economist at Emkay Global.
Indicating the closest rate forecasts, the two-year yield exceeded five percent, and the 10-year yield almost reached 4.60 percent.
The CME FedWatch tool indicates that the likelihood of a rate cut in June as well as the total amount of rate cuts in 2024 have decreased due to the inflation reading and the positive US non-farm payrolls data from last week.
“As of today, the market is pricing in 42 bps of rate cut in 2024, which indicates the start of the easing cycle in November, but one bad data and the chances could ease to 25 bps,” a trader owning a primary dealership added.
Traders are awaiting the publication of India’s consumer price inflation data later today. A Reuters poll indicates that the data likely slipped to a five-month low of 4.91 percent in March from 5.09 percent in February.
