Yields on the benchmark 10-year bond closed at 7.26%, compared with close of 7.22% Wednesday. India's FY24 borrowing target and future rate action weighed on the sentiment.
Overnight, the Federal Open Market Committee (FOMC) raised its policy Fed Funds rate by 50 basis points to 4.25-4.50% as expected, taking the total quantum of increases in 2022 to 425 basis points, the biggest increase in a single year since the Fed Funds rate became the formal policy target in 1993. One basis point is 0.01%
However, bond market participants say more clarity is needed on the rate direction.
"The broad expectations are that the RBI will hike rates one more time. The overnight US hike was on expected lines. Although inflation in both India and the US is on the wane, the market is still cautious and is awaiting more clarity on the inflation trajectory. The 10-year bond is likely to trade in the 7.20% to 7.35% range," said Siddharth Shah, head trading at STCI.
Traders want to see inflation moving below the 6% on a more durable basis before calling for a pause and hence increase in demand for bonds.
"Softer inflation is cementing expectations for a pause. However, sticky core inflation is a cause for concern and may keep repo rate higher in CY23," said Dhawal Dalal, CIO, fixed income, Edelweiss Mutual Fund.
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