WEEKAHEAD-Indian rupee, bonds eye US yields; bonds watch central bank’s debt sale -November 05, 2023 at 09:08 pm EST

MUMBAI, Nov 6 (Reuters) – The Indian rupee and bond
yields will take cues from movements in U.S. Treasury yields,
while bond traders will keep an eye on the central bank’s action
on debt sales during the week.

The rupee ended at 83.2850 per U.S. dollar on
Friday, posting a marginal decline for the week. The local unit
hit a record low of 83.2950 last Wednesday.

A new lifetime low “looks mostly out of the question” in the
wake of the “significant” downward move on U.S. yields, a forex
trader at a bank said. He expects a 83 to 83.25 range for the
week.

U.S. Treasury yields slid further on Friday after data
indicated that the U.S. labour market was softening, fuelling
hopes that the Federal Reserve is done with hiking rates.

U.S. non-farm payrolls increased by 150,000 jobs last month
after rising by 297,000 in September and compared to 180,000
expected by economists polled by Reuters. Further, the
unemployment rose and fewer jobs were added in August and
September than was previously estimated.

“The data has helped cement the view that the FOMC is
finished tightening, with markets now pricing virtually no risk
of a hike in December, and only about a 10% chance the Fed hikes
again this cycle,” ANZ said in a note.

The dollar index plunged about 1% on Friday and the 10-year
U.S. yield declined to the lowest in more than a month. U.S.
equities rallied.

Meanwhile, the Indian 10-year benchmark bond yield
ended four basis points (bps) lower at 7.3140%
last week, tracking a plunge in U.S. yields.

The 10-year U.S. yield dropped 29 bps last week to end at
4.5580% on Friday, as the market expects the Fed to keep rates
steady after maintaining a status quo in the last two policy
meetings.

“Bond yields are still in a narrow range and I do not expect
them to break this range in a major manner. Even the U.S. yields
have eased because of temporary positions and should rise again
and settle in the 4.80%-5.00% mark,” said A Prasanna, head of
research at ICICI Securities Primary Dealership.

The Fed may not hike rates further, but there would not be
any cut in the first six months of 2024, he added.

Market participants expect the Indian benchmark bond
yield to remain in the 7.26%-7.38% range this week, with focus
on the central bank’s bond sale via open market operations.

Banks have informed the RBI that its plan to sell government
bonds and its intervention in the foreign exchange market have
hurt trading volumes, four bankers told Reuters.

Indian bond yields have remained elevated but in a narrow
range, with volumes drying up since the RBI unveiled its debt
sale plan in early October.

The banking system liquidity has stayed in deficit since
then but eased sharply last week, raising the possibility of an
auction soon.

KEY EVENTS:

** U.S. Sept international trade deficit – Nov. 7 Tuesday
(7:00 p.m. IST)

** U.S. initial weekly jobless claims week to Oct. 30 – Nov.
9, Thursday (6:00 p.m. IST)

** India Sept industrial output – Nov. 10, Friday (5:30 p.m.
IST)

** U.S. Nov U Mich sentiment prelim – Nov. 10, Friday (8:30
p.m. IST)
(Reporting by Dharamraj Dhutia and Jaspreet Kalra; Editing by
Sohini Goswami and Dhanya Ann Thoppil)