Indian bond yields may rise in run up to RBI’s policy meet this week

MUMBAI (Reuters): Indian government bond yields are expected to move higher in early trading on Monday, tracking a spike in US peers after employment data in May, while investors now wait for the Reserve Bank of India’s (RBI) upcoming monetary policy decision due later in the week.

The 10-year benchmark 7.26 per cent 2033 bond yield is expected to be in the 6.98pc to 7.03pc range, after closing at 6.9823pc in the previous session, a trader with a private bank said, saying there should be an initial reaction to US yields, moving the domestic benchmark above 7pc. “But any major direction-changing move may happen only after Thursday’s policy decision.”

US Treasury prices fell, with yields especially at the shorter end rising, after data showed employment increased more than expected in May, which could pressure the Federal Reserve to hike interest rates later this month. US non-farm payrolls increase by 339,000 in May, while economists polled by Reuters had forecast payrolls increasing by 190,000.

The economy created 93,000 more jobs in March and April than previously estimated. However, a jump in the unemployment rate to a seven-month high of 3.7pc suggested that labour market conditions were easing, which could give the Fed a cover to forgo an interest rate hike.

However, the odds of the Fed pausing rate hikes in June have stayed around 30pc.

Meanwhile, RBI is scheduled to announce its monetary policy decision on June 8.