Bond yields seen little changed, inflation data watched


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MUMBAI — Indian government bond yields are likely to be little changed in early trades on Monday, as market participants await key inflation data scheduled later in the day.

The benchmark 10-year government bond yield is seen in a 7.15%-7.20% band, a trader with a private bank said. The yield fell six basis points to end at 7.1669% on Friday, posting its biggest such fall in six weeks.

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“We are unlikely to see any major volatile moves today, as there is no change in the fundamentals, but inflation data stays crucial for further moves,” the trader said.

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India will release its August retail inflation data at 1200 GMT. A Reuters poll of economists predicts the reading to rise to 6.90% from 6.71% in July.

India’s inflation has stayed above the Reserve Bank of India’s (RBI) upper tolerance range for seven straight months. The RBI targets inflation in 2%-6% band.

The RBI has hiked key policy rate by 140 basis points in May-August, to tackle elevated inflation and the next policy decision is due on Sep. 30.

Intraday, bonds are also expected to trade cautiously, tracking moves in U.S. Treasuries.

The U.S. two-year yield jumped to 3.5750%, its highest level in 15 years on Friday, as various Federal Reserve officials talked up more rate hikes to control inflation.

The Fed policy decision is due on Sep. 21 and Fed futures predict 88% probability of 75 bps rate hike.

Still, sentiment for Indian bonds remains optimistic on hopes of inclusion in global indices.

Earlier this month, Morgan Stanley said it sees a “good chance” of JPMorgan including Indian government bonds in its emerging markets index. KEY INDICATORS: ** Brent crude futures LCOc1 down 1.4% at $91.50 per barrel ** Ten-year U.S. note yield at 3.3193% (Reporting by Dharamraj Lalit Dhutia; Editing by Neha Arora)


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