Indian bonds trade narrowly mixed as investors await FOMC meeting

The Indian bonds traded narrowly mixed Tuesday as debt market remained volatile ahead the Federal Open Market Committee monetary policy meeting, scheduled to be released on Wednesday.

The yield on the benchmark 10-year bonds, which moves inversely to its price, rose 1 basis point to 7.062 percent, the 5-year note yield climbed 1-1/2 basis points to 6.966 percent, the super-long 30-year Treasury yield jumped 1/2 basis point to 7.258 percent and the short-term 2-year note yield fell 2 basis points to 6.773 percent by 07:00 GMT.

The United States Federal Reserve in its meeting scheduled on September 20-21 and it is widely expected to leave its interest rates on hold, despite concerns that the strength of the world’s largest economy warrants a rise in borrowing costs. The September FOMC statement as a potential rude awakening for markets who have come to interpret 'data dependence' to mean everything has to be perfect for the FOMC to act.

Given the continued support from labour markets and gradual improvement in pricing measures, coupled with a closing window ahead of the November elections, September sets itself up as quite possibly the best time to act (particularly given that supportive data is not something that can be a guarantee come the December meeting).

India's annual rate of inflation based on wholesale prices moved up to 3.74 per cent in August, from 3.55 per cent in the month before. While an easing of consumer prices raised hopes of an interest rate cut by the newly-appointed Governor of the Reserve Bank of India (RBI), Urjit Patel in his debut monetary policy meeting next month, after a rise in wholesale prices faded such an expectation.

India’s consumer price index (CPI) rose 5.05 percent in August from a year earlier, data released by the Ministry of Statistics showed Monday. That’s slower than the 5.2 percent median estimate in a Bloomberg survey of 35 economists and is a plunge from the previous month’s 6.07 percent rate.

“Next week’s FOMC meeting is set to be interesting given the recent divergent Fed speak. The dovish view appears to be in the ascendency for now. We expect no change in policy,” said ANZ in a research note.

Meanwhile, the Sensex fell 0.33 percent or 94.41 points to 28,540.09 and Nifty-50 futures traded 0.30 percent lower or 25.95 points at 8,803 by 07:10 GMT.