India 10-year bond yield plummets to 31-month low after Fed's massive cut
By Dharamraj Dhutia
MUMBAI, Sept 19 (Reuters) -Indian government bond yields dropped on Thursday, with the 10-year benchmark at its lowest in 31 months as traders, likely led by state-run banks, increased purchases after a bumper interest rate cut by the U.S. central bank.
The benchmark 10-year yield IN071034G=CC ended at 6.7577%, its lowest since Feb. 25, 2022, compared with a previous close of 6.7808%.
"The overall tone of the Fed Chair on growth conditions remained positive, with care taken not to sound overly worried about the labour market," said Gaura Sen Gupta, chief economist at IDFC First Bank.
The U.S. central bank on Wednesday kicked off its interest rate cut cycle with a larger-than-usual half percentage point reduction to 4.75%-5.00%, with some anticipating the local central bank to take to softening soon.
"While the Fed's pivot is significant, the Reserve Bank of India is unlikely to follow suit in its upcoming meeting," Ashwani Dhanawat, Executive Director and Chief Investment Officer, Shriram General Insurance Company.
"The RBI is expected to maintain its current stance, illustrating how central banks can operate in an asynchronous manner, responding to their unique domestic macroeconomic conditions."
The RBI's next decision is due on October 9, and the central bank has maintained rates since the last nine meetings.
Fed policymakers have projected interest rates would fall by another 50 bps in 2024, 100 bps in 2025 and 50 bps in 2026, according to an updated dot plot. However futures are pricing aggregate of around 71 bps of cuts in next two policy meetings. FEDWATCH.
After the policy, Fed Chair Jerome Powell said the move was meant to show policymakers' commitment to sustaining a low unemployment rate and called the move a "recalibration". He does see an elevated likelihood of a recession or a downturn.
The comments led to rise in U.S. yields with the 10-year yield remaining above 3.70% mark.
Traders also eye fresh supply which includes 200 billion Indian rupees ($2.39 billion) of benchmark paper on Friday.
($1 = 83.6190 Indian rupees)
Reporting by Dharamraj Dhutia; Editing by Nivedita Bhattacharjee
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