Indian bond traders turn to US inflation print after local data meets estimates

Indian government bond yields were largely unchanged in the early session on Tuesday, as traders moved their focus to the U.S. inflation data after local inflation came largely in-line with estimates.

The benchmark 10-year yield (IN071833G=CC) was at 7.1134% as of 10:00 a.m. IST, following its previous close of 7.1157%.

"At this level, there is no trigger for bond yields to move either ways, and action could be seen on Thursday, once the U.S. inflation print is out," trader with a private bank said.

India's annual retail inflation rate eased slightly in April and stood at 4.83%, down from 4.85% in March, and around 4.80%according to a Reuters poll of economists, partly due to lower fuel prices, although food prices remained elevated.

Core inflation, which strips out volatile food and energy prices, is estimated at 3.23% in April, compared with 3.3%-3.4% in March, according to two economists. The Indian government does not release core inflation figures.

The U.S. inflation print is due after Indian market hours on Wednesday, with the reading for 12 months to April expected at 3.6%, down from 3.8% in March, as per a Reuters poll.

The 10-year U.S. yield continued to remain around the critical 4.50% mark with investors eyeing inflation data for major directional trigger as it would provide more clarity on the timing and magnitude of interest rate cuts in 2024.

Traders are pricing in the probability of around 41 basis points of cuts this year, according to CME FedWatch tool. (FEDWATCH)

Traders will also eye the response at government's second bond buyback in two weeks, as the government aims to buy bonds worth up to 600 billion rupees ($7.19 billion) on Thursday.

Indian states aim to raise 65 billion rupees through sale of bonds later in the day, the quantum undershooting the calendar for a sixth straight week.

($1 = 83.5050 Indian rupees)