Government bond yields are expected to remain largely unchanged in early session on Thursday as traders eye the Reserve Bank of India's (RBI) monetary policy decision as well as guidance on future rates.
The 10-year benchmark 7.26 per cent 2033 bond yield is expected to be in the 6.96-6.99 per cent range until the monetary policy decision due at 10:00 a.m., after closing at 6.98 per cent in the previous session, a trader with a private bank said.
The market has already factored in rate action, but the crucial triggers will be the guidance and comments on the inflation path, the trader added.
"Also, liquidity conditions have taken precedence over the last few days, and any announcement in this regard would impact yields," the trader noted.
The RBI is widely seen holding the repo rate unchanged at 6.50 per cent. Meanwhile, the market will closely monitor commentary on the future trajectory of interest rates and banking system liquidity. All 64 economists polled by Reuters expect rates to remain on hold for 2023.
RBI had surprised markets with a status quo in its April policy after hiking rates by 250 bps in the previous financial year to tame inflation.
The RBI may have to absorb liquidity on an overnight basis using variable rate reverse repo (VRRR) auctions, as bankers remain reluctant to park funds for a long.
Besides, the U.S. yields rose after the Bank of Canada raised interest rates, a move that could help the Federal Reserve retain a hawkish stance when policymakers meet next week and again say U.S. rates will stay higher for longer.
The 10-year yield rose to around the 3.80 per cent mark, while the odds of a pause in rates by the Fed next week further fell to 70 per cent from around 80 per cent.
- Brent crude futures down 0.4 per cent at $76.65 per barrel, after rising 0.9 per cent in previous session
- 10-year U.S. Treasury yield at 3.79 per cent, two-year note yield at 4.55 per cent
- RBI's Monetary Policy Committee to announce interest rate decision