India bond yields end lower after Powell signals Sept rate cut

Bond yield: Indian government bond yields edged lower on Monday, tracking U.S. peers, after Federal Reserve Chair Jerome Powell signalled that the central bank will most likely start cutting interest rates from September.

The benchmark 10-year yield IN071034G=CC ended at 6.8509% compared with its previous close of 6.8591 per cent.

"The global backdrop is turning favourable for the rates markets with markets pricing in 100 basis points (bps) of rate cuts by the Federal Reserve in this calendar year and an additional 125-150 bps of rate cuts in 2025," said Jalpan Shah, fixed income head at Trust Mutual Fund.

US bond yields fell after Powell delivered his strongest signal that interest rates would be cut in September, saying a further cooling in the job market would be unwelcome, and expressing confidence that inflation is within reach of the Fed's aim of 2 per cent. 

While a 25 bps cut in September is certain, the odds of a 50 bps move rose to around 40 per cent, according to the CME FedWatch Tool. 

"The time has come for policy to adjust," Powell said in Jackson Hole, Wyoming. "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."

The next set of US non-farm payrolls and unemployment data will be keenly watched to assess the quantum of Fed rate cuts.

In India, inflation is likely to moderate on the back of a good monsoon helping cool the perishable components of the food basket, and this will pave the way for a potential rate cut from the January-March quarter, Trust Mutual Fund's Shah said.

Last week, the Reserve Bank of India reiterated that rising food prices have prevented headline inflation from hitting the central bank's 4 per cent target, requiring a rate status quo.