MUMBAI: Indian government bond yields are expected to be higher in early trades on Monday, tracking a similar move in U.S. Treasury yields, after Federal Reserve Chair Jerome Powell signalled more rate hikes to bring down inflation.
The benchmark 10-year government bond yield is likely to trade in 7.20%-7.26% band, a trader with a private bank said. The yield had slumped seven basis points on Friday to end at 7.2173%.
“The commentary from Fed is very hawkish, and even though the 10-year U.S. yield has not shown any large reaction, the two-year yield is now inching closer to 3.50%, and this should lead to some selling locally today,” the trader said.
The 10-year U.S. Treasury yield rose to 3.11% earlier on Monday, while the two-year yield jumped to their highest levels in nearly 15 years after Fed’s Powell reiterated that the U.S. central bank will continue to raise interest rates to fight inflation.
“While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said at the Jackson Hole central banking conference in Wyoming on Friday.
Markets are now pricing in about a 64.5% chance of a 75 basis point rate hike at the next Fed meeting in September.
Domestic sentiment is expected to remain cautious, as investors interpret hawkish policy signals to set the tone for the Reserve Bank of India.
And, with global oil prices staying above $100 per barrel mark, concerns over inflation have fuelled rate hike expectations.
India is a major importer of crude oil and domestic inflationary pressures are expected to mount due to higher prices. India’s consumer inflation has stayed stubbornly above 6% for seven straight months.

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