India bond yields may rise tracking US peers, RBI pause to support

Indian government bond yields are expected to rise marginally in the early session on Monday, tracking a rise in US yields.

Underlying sentiment also remains positive, after the Reserve Bank of India surprised the market with a status quo on its policy rate on Thursday. Indian markets were shut on Friday.

The 10-year benchmark 7.26% 2032 bond yield IN072632G=CC is expected to be in the 7.21% to 7.27% range, after closing at 7.2120% on Thursday.

There should be some correction in yields at the open to factor in the latest moves from US Treasuries, a trader said. "Still, par levels for the benchmark should act as a strong upside for the time being."

US yields rose on Friday, after data showed the US economy maintained a strong pace of hiring in March, as non-farm payrolls increased by 236,000 jobs last month, while data for February was revised higher to show 326,000 jobs were added instead of 311,000 as previously reported.

Economists polled by Reuters had forecast non-farm payrolls rising 239,000 in March, and the data has raised odds of a rate hike by the US Federal Reserve in May to over 70%.

On Thursday, the RBI held its key repo rate steady on Thursday at 6.50% after six consecutive hikes, saying it was closely monitoring the impact of recent global financial turbulence on the economy.

Most market participants now expect a prolonged pause, even though RBI Governor Shaktikanta said that the central bank stood ready to act against inflation if conditions warranted, and the decision was "a pause and not a pivot."

Goldman Sachs expects the retail inflation to come in below 6% for the rest of the year, and now expects the RBI to remain on hold till end of 2023, while maintaining tight banking system liquidity. It expects two repo rate cuts of 25 bps each in January-March and April-June.