MUMBAI, Aug 4 (Reuters) – Indian government bond yields are expected to start the week when the central bank will announce its rate decision with a declining trend, tracking a drop in U.S. Treasury yields after weaker economic data fuelled bets of a September U.S. rate cut.
The yield on the benchmark 10-year bond is likely to move between 6.33% and 6.36%, a trader at a private bank said, after closing at 6.3680% on Friday.
“Weaker U.S. data may not act as a large game changer, but will definitely give confidence to bulls who could further build positions to play out a rate cut this week,” the trader said.
Treasury yields plunged, led by the shorter-end notes, which are more reactive to change in interest rates, after data showed U.S. job growth slowed more than expected last month, while June’s data was revised sharply lower.
Nonfarm payrolls increased by 73,000 jobs in July, after rising by a downwardly revised 14,000 in June, while economists polled by Reuters had forecast payrolls increasing by 110,000. The unemployment rate rose to 4.2% from 4.1% in June.
The odds of a rate cut by the Federal Reserve in September have risen above 80% after the data, against around 60% last week, according to CME FedWatch Tool.
Meanwhile, the Reserve Bank of India’s monetary policy decision is due on Wednesday, in which the authority is expected to keep rates unchanged, according to a majority of the economists polled by Reuters.
Some market participants have still been laying bets on a rate cut this week, as June retail inflation dropped to a more than six-year.
The central bank changed its stance to “neutral” while cutting the benchmark rate by 50 basis points at its last meeting in June. RATES India’s overnight index swap rates are expected to witness receiving interest with local bond yields declining, and as U.S. yields dropped.
The one-year OIS rate ended at 5.51%, and the two-year OIS rate finished at 5.47%. The liquid five-year OIS rate settled at 5.7150%. KEY INDICATORS: ** Benchmark Brent crude futures down 0.3% to $69.40 per barrel after easing 4% in the previous session ** Ten-year U.S. Treasury yield at 4.2513%; two-year yield at 3.7206% (Reporting by Dharamraj Dhutia)
