India bond yields fall on lack of aggressive Trump tariffs

By Dharamraj Dhutia

MUMBAI, Jan 21 (Reuters) - Indian government bond yields were lower on Tuesday, tracking a fall in U.S. peers after President Donald Trump did not impose major tariffs on his first day in office, indicating a gradual approach to policies.

The 10-year bond yield was at 6.7359% as of 10:05 a.m. IST, compared with Monday's close of 6.7610%. Earlier in the day, the yield had fallen to 6.7281%, its lowest since Dec. 16.

"There is some relief rally in bond prices for now but with the new U.S. administration, traders will remain on the edge of their seats for any major announcements and their impact," a trader with a private bank said.

Trump said he was thinking of imposing 25% tariffs on imports from Canada and Mexico, but did not make any other tariff-related announcement.

Even so, Trump's proposed tariff policies will continue to be a key focus area and will drive volatility.

The tariffs are likely to be inflationary and will likely dictate the outlook on rate cuts from the Federal Reserve this year.

Volatility stemming from rapid policy shifts will probably be a regular feature during Trump's term. Asian central banks may need to be opportunistic regarding further rate easing, DBS said in a note.

The 10-year U.S. yield was down seven basis points (bps) at 4.54% during Asian trade.

U.S. rate futures have priced in 43 bps of rate cuts this year, up from 39 bps before Trump's inauguration on Monday. The market also sees a 66% chance of the next cut in June.

In India, the spotlight is on the central bank's liquidity management as daily repo auctions are solving the problem of overnight cash management. They, however, do not infuse durable liquidity. (Reporting by Dharamraj Dhutia; Editing by Sonia Cheema)