MUMBAI, Dec 28 (Reuters) - Indian government bond yields are expected to trend marginally lower on the penultimate trading day of 2023, tracking U.S. yields, amid growing bets of a policy pivot from the Federal Reserve in the new year.
The 10-year benchmark bond yield is expected to move in the 7.17%-7.20% range on Thursday, after closing at 7.2074% in the previous session, a trader with a private bank said.
"There was some selloff yesterday, but there could be some bullish tilt to the trading today, as Treasury yields have decline and broken the key levels. But for any large moves it needs to sustain," the trader said.
U.S. yields declined, with the 10-year yield sliding to below 3.80%, to its lowest level in over five months, as investors anticipate a mild economic recession in the U.S. heading into 2024, which could push the Fed to cut rates.
Markets are pricing in around 88% probability of a Fed rate cut in March, up from below 80% earlier in the week, while they see 81% probability of a total of 150 basis points (bps) of rate cuts in 2024, up from 76% last week.
The Fed, at its monetary policy meeting earlier in the month, had hinted at easing of 75 bps in 2024, and has raised rates by 525 bps from March 2022 to July 2023.
Meanwhile, trading volumes continue to remain on the lower side as most traders remain on the sidelines ahead of the calendar yearned.
Traders also await the borrowing calendar from Indian states for the last quarter of the financial year, and anticipate heavy fundraising.
States borrowed 2.47 trillion rupees via sale of bonds in October-December, exceeding their planned borrowing schedule for the first time in 13 quarters.
They also await the last scheduled debt auction from the central government which aims to raise 330 billion rupees ($3.96 billion) on Friday, and the auction includes 160 billion rupees of the benchmark paper. KEY INDICATORS: ** Brent crude futures 0.2% higher at $79.80 per barrel, after easing 1.8% in previous session ** The 10-year U.S. Treasury yield at 3.8092%, two-year yield at 4.2622% ($1 = 83.2570 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Nivedita Bhattacharjee)
