By Dharamraj Dhutia
MUMBAI, Nov 3 (Reuters) – Indian government bond yields are expected to rise in early trades on Thursday, following their U.S. peers, after the U.S. Federal Reserve stuck to its hawkish tone on monetary policy, dampening hopes a moderation in rate hikes.
The benchmark 10-year yield is expected to be in the range of 7.41% to 7.46%, a private bank trader said. The yield ended at 7.4044% on Wednesday.
“There was a dovish first reading of the Fed statement, but (Fed Chairman Jerome) Powell made it clear in his remarks at the press conference that there will be even more rate hikes , even though 75 basis point moves are less likely to be repeated,” the trader said.
The Fed raised interest rates by 75 basis points on Wednesday, as expected, and said its fight against inflation will require a further increase in borrowing costs.
Powell said that while policymakers were cutting future hikes, they were still undecided about how high rates should rise to rein in inflation and were determined to stay the course until the job was done.
No matter how quickly the Fed moves, “there is some way to go” for the target federal funds rate to reach a level “tight enough” that will slow inflation, Powell said. The final destination is “very uncertain… We will find it over time”.
The US 10-year yield rose above 4.10%, but the US two-year yield, which is a more direct indicator of interest rate expectations, edged closer to its highest level in more than 15 year.
Fed funds futures are now pricing in a 66% chance of a 50 basis point rally in December and a 34% chance of another 75 basis point move, according to CME Group’s FedWatch tool.
Traders will also focus on the outcome of the Reserve Bank of India’s special meeting later today, called to discuss the central bank’s response to the government after it failed to meet its inflation target for three consecutive quarters. .
The central bank will not immediately release details of its written response because it does not have the authority to do so, Governor Shaktikanta Das said on Wednesday.
**Brent futures were down 0.5% at $95.70 a barrel, after rising 1.6% in the previous session
** The 10-year US Treasury yield was at 4.1151% and the 2-year note at 4.6301%
**Additional RBI Monetary Policy Committee Meeting (Report by Dharamraj Lalit Dhutia Edited by)