India benchmark yield slips below key level as US peers plunge

Indian government bond yields declined in the early session on Wednesday, with the benchmark bond yield falling to nearly a six-week low, tracking a plunge in U.S. peers, amid rising bets the Federal Reserve may not hike rates further.

The 10-year benchmark bond yield was at 7.2313% as of 10:00 a.m. after ending the previous session at 7.2828%. Earlier in the day, the yield fell to 7.2262%, the lowest since Oct. 6. Indian markets were shut on Tuesday.

"Bond yields have adjusted to the fall in U.S. yields and the benchmark may now trade in a narrow range for the day, with further directional move in treasuries becoming the key trigger," a trader with a state-run bank said.

U.S. yields crashed after softer-than-expected consumer inflation led to hopes that rate hikes were done, while the market placed bets that cuts would begin in the first half of 2024.

U.S. consumer prices were unchanged on-month in October as Americans paid less for gasoline, the annual rise being the smallest in two years. In the 12 months through October, the CPI climbed 3.2% after rising 3.7% in September.

Economists polled by Reuters had forecast the CPI would gain 0.1% on the month and increase 3.3% on a year-on-year basis.

The 10-year U.S. yield dropped nearly 20 basis points on Tuesday and was at 4.43%, its lowest level since Sept. 22, with the probability of a rate cut in March rising to 31% and in May to 65%.

India's retail inflation fell to 4.87% in October, down from 5.02% the previous month and edging closer to the central bank's target of 4%. A Reuters poll of 53 economists had forecast a rate of 4.80%.

Kotak Mahindra Bank expects a prolonged pause by the central bank on the repo rate well into the next fiscal.