INDIA BONDS-Dovish Fed expectations steer India bonds towards gains

By Dharamraj Dhutia

MUMBAI, Sept 17 (Reuters) - Indian government bond yields edged lower in early trade on Wednesday, tracking a further drop in U.S. Treasury yields, as investors anticipated dovish signals from the Federal Reserve later in the day.

The yield on the 10-year benchmark IN063335G=CC was at 6.4797% as of 10:00 a.m. IST, after ending at 6.4925% on Tuesday.

"Looking at Treasuries as well as the rupee, confidence that yields will have a meaningful decline has grown, prodding traders to add fresh longs," trader with a state-run bank said.

The Fed's decision is due after Indian market hours, with a 25-basis-points cut already priced in and a slim chance of a 50-basis-points move.

"The key focus is likely on the Fed's forward guidance, specifically whether the dot plot signals a faster pace of cuts through the rest of 2025 and into 2026," MUFG said in a note.

"The updated Summary of Economic Projections will also shed light on the Fed's expectations for growth, inflation, and unemployment rate."

The odds of an aggregate of 75 bps of rate cuts from now through December stand at 74%, according to the CME FedWatch Tool.

Back home, traders await fresh debt supply as New Delhi plans to sell 300 billion rupees ($3.42 billion) of benchmark bonds on Friday, followed by the release of the second-half borrowing calendar.

The Reserve Bank of India will also auction treasury bills worth 210 billion rupees later in the day.

Bond traders have urged RBI to cut the share of ultra-long bonds in the supply schedule for October-March.

RATES

India's overnight index swaps are expected dip tracking bond yields, on anticipation of a dovish Fed.

The one-year OIS rate INR1YMIBROIS=CC and the two-year OIS rates INR2YMIBROIS=CC were not yet traded, while the liquid five-year OIS rate INR5YMIBROIS=CC was lower at 5.69%.

($1 = 87.7570 Indian rupees)