Government Bond yields little changed as traders await MPC policy decision

The Reserve Bank of India (RBI) logo on a belt at bank's headquarters in Mumbai, India, on Friday, Sep. 30, 2022. India’s central bank delivered a hat-trick of half-point interest-rate hikes, sustaining its battle to rein in inflation while flagging “calibrated action” to shield the economy amid fears of a global recession. Photographer: Dhiraj Singh/Bloomberg

Indian government bond yields ended largely unchanged Monday, as traders waited for domestic monetary policy decision due later in the week, which analysts said was mostly priced into the market.

The benchmark 10-year yield closed at 7.2254% after ending at 7.2215% on Friday.

The Reserve Bank of India-led Monetary Policy Committee (MPC) is expected to hike rates by a smaller 35 basis points to 6.25% on Wednesday, according to economists polled by Reuters.

A strong two-thirds majority said it was still too soon for the central bank to take its eye off inflation.

Retail inflation eased to a three month low in October, helped by a slower rise in food prices and a higher base effect.

"Bond yields are unable to comfortably break the 7.20% handle on the downside, as they also want to gauge guidance given by the MPC," said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.

Markets were also cautious as oil prices gained on Monday, with the OPEC+ holding output targets steady ahead of a European Union ban and a price cap kicking in on Russian crude.

The benchmark Brent crude contract was trading 1.8% higher at $87.15 per barrel. India is one of the largest importers of the commodity and oil prices have a big bearing on nation's inflation.

Bond yields had fallen last week after U.S. Federal Reserve Chairman Jerome Powell signalled that the central bank could slow its pace of interest rate hikes in December.

The Fed is expected to hike interest rate by 50 basis points on Dec. 14 to a 4.25%-4.50% band.