INDIA BONDS-Benchmark yield eases to 7.25% as U.S. peers fall after Fed comments

By Dharamraj Dhutia

MUMBAI, Dec 1 (Reuters) - Indian government bond yields declined on Thursday, with the benchmark yield easing back to 7.25% levels, tracking a similar move in U.S. peers, after U.S. Federal Reserve Chair Jerome Powell struck a more dovish tone than the market expected.

The benchmark 10-year yield was at 7.2483% as of 10:00 a.m. IST. It had ended at 7.2798% on Wednesday. Yields were last at 7.25% on Monday.

The benchmark bond yield posted its steepest monthly fall since March 2020 in November as it eased by 16 basis points, with softening domestic and U.S. inflation raising bets that aggressive rate-hike cycles may be nearing an end.

A trader with a primary dealership said though benchmark yield was back to 7.25% levels on Powell's commentary which has added to bullishness, a further break "seemed difficult."

U.S. Treasury prices rose, with the yield on the 10-year note declining to 3.60%, its lowest in nearly two months after Powell said the U.S. central bank could ease the pace of interest rate hikes "as soon as December" but warned that the fight against inflation was far from over.

Fed funds futures have raised the chances of a 50-basis points (bps) hike at the next policy meeting to 91%, from 83% just before Powell's comments. The Fed has raised rates by 375 bps so far in 2022 to the 3.75%-4.00% range.

Meanwhile, India's economy grew 6.3%in the July-September quarter, less than half the 13.5% growth in the previous three months, and growth for the full year is likely to be 6.8%-7%, the government's chief economic advisor, V. Anantha Nageswaran, said after the release.

Nomura said India's growth rate cycle had peaked and a broad-based slowdown was underway, with economists expecting a 35 basis points (bps) rate hike in December, followed by a final 25 bps in the February meeting.

The Reserve Bank of India's next policy decision is due on Dec.7. It has raised repo rate by 190 bps since May to 5.90%. (Reporting by Dharamraj Dhutia Editing by Nivedita Bhattacharjee)