Ease in bond yields, eyes on American peers; inflation data key

The benchmark 10-year yield ended at 7.3427% in the first trading session of the week, its highest since November 9, after ending at 7.3736% on Friday.

Domestic wages rose less than expected last month and new jobs rose more than expected, while service-sector activity contracted for the first time in more than 30 months, as US yields fell on Friday.

The 10-year US yield fell 15 basis points to 3.56%, while the two-year yield declined 19 bps to 4.26%.

Weak economic data has fueled bets that the Federal Reserve could slow its pace of hikes from last year’s frenzied pace when it raised interest rates by 425 bps.

Puneet Pal, head of fixed income at PGIM India Mutual Fund, said, “US bond markets have cut their expectations of terminal Fed rate below 5% following PMI data.”

The next major data point is inflation data for the US and India for December, which came out on Thursday.

India’s inflation eased to 5.88% in November, falling below the central bank’s upper tolerance level of 6% for the first time in 11 months.

Traders are also awaiting the announcement of the federal budget on February 1. Taimur Baig, chief economist at DBS Bank, told Reuters on Monday the government would aim to reduce its budget deficit without losing focus on long-term economic growth.

“We expect the budget to chart a path towards some fiscal consolidation.”

DBS Bank expects the government to target a fiscal deficit of 5.8-5.9% of gross domestic product (GDP) in 2023/24, compared with 6.4% for the current fiscal year ending March 31.